House rent allowance (HRA)

House Rent Allowance is one of the famous perquisites that are given by employer to employee. Let’s understand the taxability of HRA.

The purpose of this allowance is towards payment of rent for residence of the employee. The exemption of HRA is different for Metro and other cities. HRA granted to an employee is exempt to the extent of least of the following:

 

Metro Cities (i.e. Delhi, Kolkata, Mumbai, Chennai)		Other Cities
1)	HRA actually received for the   relevant period.	1)	HRA actually received for the relevant period
2)	Rent paid (-) 10% of salary for the relevant period	2)	Rent paid (-) 10% of salary for the relevant period
3)	50% of salary for the relevant period	3)	40% of salary for the relevant period

Carefully note the following things.

1.     In case the employee lives in his own house, or in a house for which he has not incurred the expenditure of rent, the second point of above table will become zero and accordingly HRA exempt will become zero and whole of the amount will become taxable.

2.     In the third point of the table, Salary shall mean basic salary, dearness allowance and commission as a fixed percentage of turnover.

3.     Relevant period means the period during which the employee received HRA during the previous year.

 

Let’s take an example:

Mr. Ramu has the following receipts from his employer Mr. Shyamu:

• Basic pay                                                       Rs. 8,000 p.m.
• Dearness allowance (D.A.)                              Rs.  1,000 p.m.
• Commission                                                   Rs.  2,000 p.a.
• House rent allowance                                      Rs. 1,500 p.m
• Rent paid at Delhi                                           Rs. 1,200 p.m.

 

The calculation of taxable HRA in the above case shall be as follows:

1. HRA received                                                 Rs.18,000
2. Less: Exempt under section 10(13A)                Rs.  3,600

[Note]                                              

3. Taxable HRA (1-2)                                        Rs. 14400

 

Note: Exemption shall be least of the following three limits:

• the actual amount received (Rs. 1500 × 12) i.e. Rs. 18000
• excess of the actual rent paid by the assessee over 10% of his salary

= Rent Paid (-) 10% of salary for the relevant period

= (Rs. 1,200×12) (-) 10% of [(Rs. 8,000+ Rs. 1000 ) × 12]

= Rs. 14,400 – Rs. 10,800

= Rs. 3,600

• 50% salary as his accommodation is situated at Delhi

= 50% of [(Rs. 8,000+ Rs. 1000) × 12]

= Rs. 54,000

 

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