House Rent Allowance HRA

Most employees receive HRA as part of their salary. The intention is usually to meet cost of a rented accommodation that you may be living in.

In case you pay rent, a portion of the HRA may be exempt from tax for you. If you do not live in a rented house, the entire amount will taxed as part of your salary each month, at the applicable tax rates.

If you have to claim a deduction from HRA – you must live in a rented accommodation, there must be a rent agreement and you should be able to support the rent payment you make each month.  You cannot pay rent to your spouse – however, you can enter into a rent agreement with your parents or children. If you enter into a rent agreement with your parents or children, make sure they are including rent receipts as part of their taxable income.

HRA

The deduction available is the minimum of the following amounts

  • HRA received – if you have stayed in rented accommodation for part of the year, consider HRA for only that part.
  • 50% of your Basic Salary when you live in a rented place in Mumbai, Calcutta, Delhi or Chennai OR if you are in any other city 40% of your Basic Salary
  • Rent paid less 10% of Basic Salary

Basic Salary includes dearness allowance, where applicable.

Example –

Mr A lives in Mumbai and gets Rs 50,000 as basic salary & Rs 20,000 as HRA. The rent paid by him for his house is Rs 18,000.

The amount exempt to be taxed from HRA will be minimum of these three:

  • HRA received = Rs 20,000
  • 50% of Basic since he lives in Mumbai = Rs 25,000
  • Rent paid – 10% of Basic = Rs 18000 – Rs 5,000 = Rs 13,000

Therefore HRA exempt = Rs 13,000. And Rs 20,000 – Rs 13,000 = Rs 7,000 will form part of his Taxable Income on account of HRA.

 

Note that – in case you are claiming any other deduction for your house property – say towards a loan – HRA exemption has no impact on that. You are eligible to claim HRA deduction if you meet the conditions stated above.

 

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