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House Rent Allowance, commonly known as HRA is an allowance paid by the employer or the organisation to its employees as a part of the salary. This allowance is provided as compensation for the employees for their monthly house rent.
According to the Income tax act of 1961 section 10 (13A) and rule number 2A, HRA provided by the employer is not taxable. Hence salaried employees or individuals can claim this as per the terms and conditions.
In case you are self-employed, the House Rent Allowance or HRA exemption can be claimed under section 80GG of the Income tax act of 1961.
In case salaried employees do not receive an HRA allowance as a part of their salary, one can use the 80GG section of the Income tax act of 1961 to claim the HRA tax exemptions.
One should be also aware that the tax exemption of the HRA allowance stays true only if the individual lives in a rented house and not their own residence.
The HRA calculation for salaried employees is done based on a certain condition. The lowest among the following will be the exempted HRA from the salary.
Hence, the lowest value among these conditions is the HRA exempted from the Income tax.
Let us imagine Rishab works in an IT firm in New Delhi and earns ₹80,000 as his monthly salary. He lives in an apartment and pays a rent of ₹15,000 a month. Here is his salary breakdown.
He pays a rent of ₹15,000 a month hence, in a year the actual rent paid is ₹180,000.
Let us break this down based on the 3 conditions mentioned above.
Among the 3 conditions the least is Actual rent paid - 10% of (Basic salary + DA) (p.a) which is ₹132,000. Hence, this will be your HRA exemption from the Income tax.
In the case of a non-metro city, the HRA calculation formula is 40% of (Basic salary + Dearness allowance) per annum. The rest of the conditions stays the same.
Let us imagine that the employee lives in a rented residence in New Delhi and has a house in Chennai which is rented to someone else. This is a house under a home loan for which the employee pays his EMI.
In the above case, the employee can claim his HRA exemption on both the home loan and the rent paid.
However, the employee has to declare the income gained through the rented property in Chennai for which he pays the home loan and pay the tax for the income earned.
In case of a situation where the property owned and the employee’s rented residence is in the same city, then he/she is not eligible for HRA exemption. The employee has to prove that the property owned is far away from the actual job location and cannot be used. Once proven, then he/she is eligible for HRA tax exemption.
In order to claim the exemption of the Income-tax for your HRA, the documents required are
Access the simple HRA calculator online to calculate the income tax exemption on your house rent allowance.
No, HRA tax exemption is applicable only on a rental property.
HRA in India is calculated based on the condition that the lowest among the following set conditions is the exempted amount from income tax.