Computation of House Rent Allowance (HRA) - [Section 10(13A) Read with Rule 2A] - Income Tax - Ready Reckoner - Income Tax

House Rent Allowance (HRA) [ Section 10(13A ) Read with Rule 2A ] 1. HRA is given by employer to employee to meet the expenses in connection of a rented house taken by the employee for his stay. The Income Tax Act allows for deduction in respect of the HRA paid to employees. 2. An employee can claim exemption on his HRA. In order to claim the deduction, the employee must actually pay rent for the house which he occupies and the rented premises must not be owned by him. 3. The quantum of exemption allowable on account of grant of special allowance to meet expenditure on payment of rent shall be the least of the following: In Mumbai/Delhi/Kolkata/ Chennai In Any other cities 1. Allowance actually received 1. Allowance actually received 2. Rent paid in excess of 10% of salary 2. Rent paid in excess of 10% of salary 3. 50 percent of salary 3. 40 percent of salary Meaning of Salary for calculation the exemption of HRA Salary means (Basic + D.A + Commission based on fixed percentage on turnover). in other words Salary includes dearness allowance , if the terms of employment so provide, but excludes all other allowances and perquisites. Salary is to be taken on due basis in respect of the period during which the period accommodation is occupied by the employee in the previous year. Where the employee has not actually incurred any expenditure on payment of rent, then no exemption of HRA is available. NOTE:- It has to be noted that only the expenditure actually incurred on payment of rent in respect of residential accommodation occupied by the assessee subject to the limits laid down in Rule 2A, qualifies for exemption from income-tax. Thus, house rent allowance granted to an employee who is residing in a house /flat owned by him is not exempt from income-tax. Allotted HRA cannot exceed more than 50% of your basic salary. Tax benefits of HRA along with a home loan can also be availed. In case you stay with your parents, you are eligible to pay rent to your parents and collect a receipt for HRA claim. However, similar rules don t allow you to pay rent to your spouse and claim a tax exemption. If the annual rent of your accommodation exceeds Rs. 1,00,000, then presenting the landlord s PAN card/self declaration (in case he does not have a PAN card) is mandatory. In case your landlord is an NRI, you must deduct 30% tax from the rent amount that needs to be declared.