Employees generally receive a house rent allowance (HRA) from their employers. An employee can claim exemption on his HRA under the Income Tax Act if he stays in a rented house and is in receipt of HRA from his employer. This explains what is House Rent Allowance (HRA), how much of it is taxable and how much is exempt, how to calculate HRA exemption, how to then show it in Income Tax Return (ITR) for individuals for ITR1 and ITR2.
Table of Contents
What is House Rent Allowance?
Allowance is defined as a fixed quantity of money given regularly for meeting specific requirements of the employees in addition to salary. As a general rule, all allowances are to be included in the total income unless specifically exempted.
House Rent Allowance or HRA is given by the employer to the employee to meet the expenses of rent of the accommodation which the employee has taken for his residential purpose. House Rent Allowance so paid by the employer to his employee is taxable under head Income from Salaries , but it can help you save taxes under Section 10(13A) of the Income Tax Act.
Self-employed professionals cannot be considered for HRA exemption under this act, as they do not earn a salary. However, they can claim benefits on the house rent expenses incurred under section 80GG, which resembles section to 10 (13A) but is subject to certain conditions.
Calculation of HRA
When you are calculating HRA for tax exemption, you take into consideration four aspects, which are
- HRA received
- Actual rent paid
- Place of residence i.e where you reside, a metro or non-metro city. Tax exemption for HRA for a metro city(Mumbai, Kolkata, Delhi or Chennai) is 50% of the basic salary, while that for non-metro cities is 40% of the basic salary.
Basic Salary for the purpose of HRA Calculation is Basic pay + Dearness Allowance + Commission based on fixed percentage on turnover and excludes all other allowances and perquisites. If the rent paid by you does not exceed 10 per cent of your salary , then you get no tax exemption on the HRA received. As per income Tax act, for calculation House rent allowance least of the following is available as deduction. HRA Exemption Calculator :
- Actual HRA received
- 50% / 40%(metro / non-metro) of basic salary
- Rent paid minus 10% of salary.
Example of HRA calculation
Mr T.Mehta earns a basic salary of Rs 40,000 per month and rents an apartment in Delhi for Rs 20,000 per month . The actual HRA he receives is Rs 25,000. These values are considered to find out his HRA tax exemption:
|1||Actual HRA received||25,000|
|2||50 per cent of the basic salary,(metro City)||20,000|
|3||Excess of rent paid over 10% of salary20,000(Actual rent) – Rs 4,000(10% of 40,000)||16,000|
|HRA exemption (least of 1,2,3)||16,000|
|Taxable HRA amount25,000 (HRA received -16000 (HRA exemption)||9,000|
If these aspects remain constant through the year, then tax exemption is calculated as a whole annually, if this is subject to change, as in a rent hike, pay hike or shift in residence etc., then it is calculated on a monthly basis. There are different ways of calculation as explained by SimpleTaxIndia in HRA exemption calculation monthly, yearly or period basis
For calculation purpose, only salary pertaining to periods in which accommodation was occupied and rent paid will be taken into account. Also, salary is calculated on due basis. This means that if you receive salary arrears of earlier years or advance salary pertaining to future years, it will not be considered while calculating the tax exemption.
Conditions for claiming HRA exemption
- You must live in a rented residential accommodation, and pay rent for the same. If you stay in your own house, or in a house where you don’t pay rent, you cannot claim the exemption.
- If you pay house rent to your spouse, this does not qualify for exemption. But you can claim exemption on rent paid to others including parents, brother, sister in-laws etc.
- If you rent the house for only part of the year, the HRA exemption is allowed only for that period.
- Also, you must actually pay the rent to claim the exemption. If rent is due but unpaid, the benefit of tax exemption on HRA is not available. Employers usually require proof of rent payment (receipts from the landlord) before adjusting the HRA tax exemption in the monthly tax calculation.
- If both husband /wife are working and living in same house on rent both can claim HRA subject to rent is shared/paid by both and individually,both can claim exemption up to share of rent paid actually paid by you.
- The deduction is available only for the period during which the rented house is occupied by the employee and not for any period after that.
- From fiscal year 2011-12 You need to give PAN details of landlord if rent exceeds Rs. 1.8 lakh year or Rs. 15,000 per month. According to the CBDT circular, if your landlord does not have a PAN, he is required to write a declaration signed by him with his complete name and address. The landlord needs to identify himself by attaching valid identification proofs. In the declaration, the landlord has to specify that he does not hold a PAN card.
Home Loan and HRA
Tax benefits for home loans and HRA are two separate aspects and have no direct bearing on each other. If your own home is rented out or you work from another city etc then As long as you are paying rent for an accommodation, you can claim tax benefits on the HRA component of your salary, while also availing tax benefits on your home loan. Please account for any rental income you receive from the property you own under income from House Property.
HRA Exemption Calculator
Please enter the details for calculating HRA. You can enter annual or monthly values of inputs such as Rent, HRA from Payslip.
|Details (Rent,HRA,Basic Salar) entered are||AnnualMonthly|
|Rent that you pay (Rs.):|
|Basic Salary (Rs.) :|
|Dearness Allowance(DA) (Rs.) :|
|HRA (Rs.) :|
|Do you live in metro city of Delhi,Mumbai,Kolkata,Chennai||Yes
|Num of months claiming HRA for:|
HRA Exemption :
HRA and Form 16
Form 16, shows the HRA exemption as shown in image below. House Rent Allowance (HRA) Exemption would be calculated by your employer and shown in Form 16 if rent receipt were submitted on time.
ITR2 and HRA
ITR2 shows the schedule (or section) S, Income from Salary
Instructions to Fill Schedule S from ITR2 are as follows
Filling of Schedule Income from Salary from Form 16 (Click on image to enlarge)
1 Salary (Excluding all exempt/non-exempt allowances,perquisites & profit in lieu of salary ) should be filled from Gross Salary (a) part marked as 1 in Form 16 in maroon. Fill in the other information matching corresponding numbers ex: Profits in Lieu of Salary is 5 in Schedule S and 5(in color maroon) in Form 16.
If your HRA has not been accounted in Form 16, you can still claim it by using the calculation of HRA shown earlier. As the HRA was not claimed, taxable income would be more hence employer would have deducted tax on it. Now when you claim it in ITR you tax liability would get reduced (and in cases where you have paid more tax than due you might get refund also) Our article How to Claim Deductions Not Accounted by the Employer explains it in detail.
ITR1 and HRA
ITR1 has only one field for filling Income From Salary. So for field Income chargeable under the Head Salary/Pension , on your Form 16, you need to fill in Gross Salary which takes care of all deductions,allowances etc . Fill information in point 6, as shown in image below. Our article Fill Excel ITR1 Form : Income, TDS, Advance Tax explains it in detail.
Articles that may be useful to you are:
- E-Filing of Income Tax Return
- E-filing : Excel File of Income Tax Return
- Which ITR Form to Fill?
- Fill Excel ITR form : Personal Information,Filing Status
- Fill Excel ITR1 Form : Income, TDS, Advance Tax
- Fill Excel ITR1: 80G, Exempt Income,Calculation of Tax
- After e-filing ITR: ITR-V,Receipt Status,Intimation u/s 143(1)
- Salary, Net Salary, Gross Salary, Cost to Company: What is the difference
Hope it helped in clarifying doubts on HRA? Looking forward to your comments and feedback.