HRA Calculation and Exemption

Posted on : Tuesday, December 30, 2014

House Rent Allowance (HRA) is an allowance paid by Employer to their Employees to compensate for the house rent paid by them for their accommodation. House Rent Allowance is part of the Salary and it is chargeable to Income Tax. However, the Income Tax department has exempted certain portion of HRA from Income Tax under Section 10(13A) of the Income Tax Act and Rule 2A of Income Tax Rules. The rules for claiming the HRA exemption, eligible limits, and so on are discussed in the following sections.

How to Calculate HRA Exemption?

The House Rent Allowance exemption under the Income Tax Act is lower of the following amounts:

1. Actual House Rent Allowance received.
2. Actual House Rent paid – (subtract) 10% of (Basic Salary + Dearness Allowance + Bonus).
3. 50% of (Basic Salary + Dearness Allowance + Bonus), if you are employed in Metropolitan Cities (Delhi, Mumbai, Kolkata or Chennai) Or 40% of (Basic salary + Dearness Allowance + Bonus), if you are employed elsewhere.

Thus, the Income Tax benefit on House Rent Allowance is dependent on the City of Employment, House Rent Allowance Received, Rent paid and Salary including Dearness Allowance and Bonus.

Example to Calculate HRA

Mr. Sahil is employed in Kanpur from 01.04.2013 to 30.9.2013 and thereafter he shifts to New Delhi from 01.10.2013. The details of Mr. Sahil for Financial Year 2013-14 are as follows:

Particulars	Employed in Kanpur (01.04.2013 - 30.09.2013)	Employed in New Delhi (01.10.2013 - 31.03.2014)
Salary	Rs. 5,20,000	Rs. 7,60,000
Dearness Allowance	Rs. 20,000	Rs. 50,000
Bonus	Rs. 60,000	Rs. 90,000
Total Salary	Rs. 6,00,000	Rs. 9,00,000
HRA Received	Rs. 1,20,000	Rs. 3,00,000
Rent Paid	Rs. 1,00,000	Rs. 2,40,000

The HRA exemption calculation has to be computed separately:

Particulars	Employed in Kanpur (01.04.2013 - 30.09.2013)	Employed in New Delhi (01.10.2013 - 31.03.2014)
HRA Received	Rs. 1,00,000	Rs. 2,40,000
HRA Exempt (Lower of (i), (ii),(iii) below)	Rs. 60,000	Rs. 2,10,000
HRA Taxable	Rs. 40,000	Rs. 30,000
(i) Actual HRA Received	Rs. 1,00,000	Rs. 3,00,000
(ii) Actual house rent paid – (subtract) 10% of (Basic Salary + Dearness Allowance + Bonus)	Rs. 60,000	Rs. 2,10,000
(iii) 40% / 50% of (Basic salary + Dearness Allowance + Bonus)	Rs. 3,00,000	Rs. 4,50,000

Rules To Claim HRA Exemption

• HRA is allowed as deduction only if the Employee is paying rent. If an individual is residing in own house, the entire HRA is taxable.
• Any arrears of Salary received during the previous year must not be considered for calculating the exemption limit of HRA. For calculating the exemption of HRA, salary is considered on due basis.

How to claim House Rent Allowance Exemption?

• If an individual is paying the rent in excess of 1 lakh INR per year, individual is required to furnish the PAN of the landlord to the Employer. In case, the landlord does not have a PAN, a declaration containing the name and address of the landlord has to be furnished. This helps in correct deduction of TDS.
• If the rent paid is less than 1 lakh INR per year, the Employee has to furnish the rent receipts.
• If you have not furnished PAN/Rent Receipt to your Employer and subsequently the employer has not given exemption with respect to HRA, you do not need to worry. You can still claim HRA deduction while efiling Income Tax Return.

However, the Assessee has to prove that the rent has been paid and thus eligible for HRA exemption.

FAQ’s on HRA

I own a house, but I am residing in a place which belongs to my parents and paying rent. Can I claim deduction for HRA in respect of rent paid to my parents?

Yes, you can claim the deduction in respect of rent paid to your parents. However, you must consider that Income from the House Property belonging to you would be chargeable as Income from House Property. Rent paid to parents and relatives is allowed as deduction. However, rent paid to Spouse is not considered for exemption.

I am an Employee and I live in a rented flat in Mumbai. My Family resides in a rented flat in Jaipur and I pay the rent. Can I claim deduction in respect of rent paid in Mumbai and Jaipur?

In such a case, you can claim exemption only for rent paid in Mumbai. Because, the House Rent Allowance exemption is available only if the Employee resides in the rented house.

My Spouse and I are employed and we live in the same house. Can we both claim HRA exemption?

Yes, both can claim exemption for house rent paid if you share the house rent expense. You must remember your and spouse’s salary slab to claim deduction so that the overall income tax liability can be reduced.

To calculate your tax savings on House Rent Allowance, use our House Rent Allowance calculator.

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