House Rent Allowance (HRA)


House Rent Allowance (HRA) is given by the employer to the employee to meet the expenses in connection with rent of the accommodation which the employee might have to take for his residential purpose. This House Rent Allowance so paid by the employer to his employee is taxable under head “Income from Salaries” to the extent it is not exempt u/s 10(13A).

Exemption in respect of House rent allowance is regulated by rule 2a, it is based upon the following:

  1. An amount equal to 50% of Salary, where residential house is situated at Bombay, Calcutta, Delhi or Madras and an amount equal to 40% of Salary where residential house is situated at any other place.

  2. House rent allowance received by the employee in respect of the period during which rental accommodation is occupied by the employee during the previous year

  3. The excess of rent paid over 10% of Salary

Amount exempt from Tax: The least of the above three is exempt from Tax

How to Calculate HRA


To understand how to calculate HRA, let us take an example. Mr X stays in Mumbai and pays a rent of Rs. 10,000 per month.

BASIC 30,000 PF 2,000
HRA 13,000 PROFESSIONAL TAX 200
CONVEYANCE 2,000    
SPECIAL ALLOWANCE 3,000    
MEDICAL 1,250    
LTA 5,000    
Total Earnings 54,250    

For calculating HRA that is exempt from income tax we have:

Salary - Rs. 30,000 per month (the basic salary will be considered in this case since there is no commission or dearness allowance) HRA provided by company – Rs. 13,000 per month 10% of basic salary (10% of annual basic salary) – Rs. 36,000

Now we calculate the three scenarios:

  • Amount received as HRA from employer = Rs. 13,000 X 12(months) = Rs. 1,56,000
  • Actual rent paid less 10% of basic = (Rs. 10,000 X 12) – Rs. 36,000 = Rs. 84,000
  • 50% of basic salary since he lives in a metro = Rs. 1,80,000

In the above case, it is evident that the HRA amount which will be exempt from tax will be Rs. 84,000 because that is the amount that is the least of the three scenarios.

Benefits of HRA


The biggest benefit of the house rent allowance is that it provides for an avenue to reduce the taxable income , which in turn leads to a reduction in the tax that you have to pay.

The following other points should be kept in view:

What is Salary? – “Salary” for this purpose means basic salary and includes dearness allowance if terms of employment so provide. It also includes commission based on fixed percentage of turnover achieved by an employee as per terms of contract of employment – Bur it does not include any other allowance and perquisite.

“Salary” shall be determined on “due” basis – Basic salary, dearness allowance and commission are determined on due basis in respect of the period during which rental accommodation is occupied by the employee in the previous year. It is therefore, follows that salary of period, other than the previous year is not considered even though such amount is received during the previous year and is taxable on “receipt” basis. Likewise, salary of the period during which rented accommodation is not occupied in the previous year, is left out of the aforesaid computations.

When exemption is not available - Exemption is denied where an employee lives in his own hose, or in a house for which he does not pay any rent or pays rent which does not exceed 10 percent of salary.

Mode of computation of exemption – The amount of exemption in respect of House rent allowance received by an employee depends upon the following-

  • “Salary” of the employee,
  • House rent allowance
  • Rent paid and
  • The place where house is taken on rent

When these four are same throughout the previous year, the exemption should be calculated on “annual” basis. When, however, there is a change in respect of any of the aforesaid factors, then the exemption shall be worked out on “Monthly” basis.



HRA Exemption Calculator



   

You can claim HRA while tax filing even if you have not submitted rent receipts to your HR. efiler will help you claim this while e-filing.



Common questions about HRA exemption


Is lease agreement required?


You must sign up a lease agreement with the landlord. This agreement will have details of the accommodation on lease, period of lease and rent agreed. This document may have to be submitted to your employer.

Why do I need rent receipts?


To allow you exemption on HRA, it is mandatory for the employer to collect proof of rent payment. The employer will give you exemption on HRA based on these rent receipts. Your TDS shall be adjusted so you don’t have to pay tax on HRA and your final tax liability will be calculated accordingly. Usually, employers need receipts for 3 months or so.

Do I need the PAN number of my landlord?


If the annual rent paid by you is more than Rs 1,00,000, it is mandatory to obtain PAN of the landlord and report it to the employer to claim HRA exemption. In case the landlord does not have a PAN, you can ask for a declaration to this effect from the landlord with name and address of the landlord. And keep it safely in your records.

I could not submit rent receipts in time. If you have not been able to submit rent receipts to your employer, don’t worry, as HRA exemption can be directly claimed in your income tax return. Find out the exempt portion of HRA. This exempt amount has to be reduced from your total taxable salary. The net amount is shown as your ‘income from salary’ in your income tax return. Do remember to keep rent receipts and lease agreement safely in your records, in case the assessing officer asks for them later.

My landlord is not giving me rent receipts?


In this situation you may not be able to claim HRA exemption, remember to agree about rent receipts with your landlord before taking the accommodation on rent.

I was on rent for part of the year?


You can still claim HRA for the months you were living on rent. For the remaining months tax shall be deducted on your HRA.



Latest HRA News


Evidence of Expenditure


According to the government notification, if an individual claims housing rent allowance (HRA) of over Rs 1 lakh, he will need to furnish name, address and permanent account number (PAN) of the landlord. Those claiming leave travel allowance/concession (LTA or LTC) will need to give 'Evidence of Expenditure'.

If you have a housing loan and claim deduction on the interest portion, you will now need to provide PAN of the lender along with its name and address.

Similarly, relevant proof will need to be submitted for claiming deductions under Chapter VI-A (A) and Chapter VI-A - which cover Sections 80C, 80CCC, 80CCD, 80E, 80G, 80TTA, et al. These rules come into effect from June 1 of this year.

In the 2015 Budget, the Finance Act had introduced Section 192(2D) of the Income Tax Act. According to it, the person responsible for making payment of salary (employer) was casted with an obligation to collect the necessary evidence or proof. However, the relevant rules and form were yet to be prescribed, which the government has done now.

Details such as quoting of PAN of landlord would help the authorities to track fudged claims. Using PAN of landlord, the authorities can also verify whether rent received by the landlord is duly disclosed in his or her income tax return or not.

The details for claiming HRA and LTA were provided earlier as well but not in this specified format. In some cases, they have asked for more details. Furnishing PAN details of lender for those claiming deductions on interest of home loan, for example, is new .

The circular however doesn't specify the documents that are necessary to support the deduction claimed by an individual. The existing documents that employees provide should hold good. So, you can continue to give rent receipts for HRA and boarding pass and tickets for LTA or LTC.

Tax rebate on rent for non-HRA workers


In Budget 2016, the finance minister has raised the maximum deduction available under section 80GG to Rs 60,000 per annnum from existing Rs 24,000 per annum. This impacts those who are not salaried employees or do not receive HRA as part of their salary. As per current tax laws, such people can claim deduction of rent paid from gross taxable income upto Rs 24,000 per annum. This limit is now proposed to be been increased to Rs 60,000 per annum. Thus, consultants or self employed people such as teachers who give coaching classes, adhoc employees would be affected by this proposed change.

Currently, salaried individuals (getting HRA as part of salary) and claiming deduction of rent paid from salary income under section 10 are not affected by this proposed change in tax law.

The deduction under section 80GG is available to an assessee who does not receive any HRA component as a part of his salary. Deduction is available in respect of the rent paid by assessee for his own accommodation in a particular year. A declaration in Form 10BA is to be submitted by the assessee in order to avail this deduction. Currently, the amount of deduction allowed is the least of the following: Rent paid over 10 % of salary( basic + D.A) or 25% of total income( before subtracting any deductions) or Rs 2000 p.m

A salaried employee who does not receive HRA as a part of his salary or an assessee, who do not have any income from salaries, makes use of deduction u/s 80GG on account of payment of rent. The current provision provides a maximum deduction of upto Rs 2000 p.m. which is often not enough to cover even 50% of the actual rent paid. In order to make the computation just and fair and taking a realistic approach, the FM has proposed to increase the maximum ceiling on this deduction.

Time to submit proof for LTA, HRA tax deduction


The Central Board of Direct Taxes (CBDT) has recently released New Form No. 12BB. This is going to be the new standard form for salaried tax payers to claim tax deduction on;

  • LTA (Leave Travel Allowance) / LTC (Leave Travel Concession)
  • HRA (House Rent Allowance)
  • Interest payable on Home Loan (Section 24) and
  • All Tax Deductions under Chapter VI-A which relates to allowable deductions under various sections including Section 80C, Section 80CCC Section 80CCD, Section 80D etc.,

Submit new Form 12BB to claim Income Tax Deductions w.e.f 1st June, 2016. Below is the latest and standard Form 12BB. Click on the image to download Form 12BB.

form 12BB HRA



Download Form 12BB