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House Rent Allowance (HRA) Taxability & Calculations

House Rent Allowance is an allowance given to employees for meeting rent expenses. Exemption is available u/s 10(13A) if rules for HRA exemption are followed.

 

The allowances provided by the employers to their employees for meeting the residential rent expenses for their accommodation is known as House Rent Allowance. The amount of HRA given to the employee is taxed under the head of “Income from Salaries”, excluding the amount exempted u/s 10(13A). The amount calculated after the exemption is added to the total salary and taxed as per slab rates of income tax.

HRA Exemption Calculation u/s 10(13A)

The minimum of the following three amounts calculated would be exempted

  1. Actual HRA received from the employer
  2. Actual rent paid reduced by 10% of the salary*
  3. 40% of the salary* (50% in case of metro cities)

Note: *Salary comprises of basic pay, dearness allowance (if included regarding employment), and commission on turnover based on fixed percentage. The salary is taken for the period the employee occupies the accommodation. The salary is considered on due basis.

 

Particulars Amount
House Rent Allowance Received 5000
Less: Exemption u/s 10(13A) -(1545)
Amount of Taxable HRA included in Total Salary 3455

HRA Exemption Rules

  • If an employee pays no rent then no HRA exemption can be requested, i.e., actual payment of rent is compulsory.
  • Exemptions are calculated on a monthly basis in case of any change in the city (metro to non-metro and vice-versa), amount of salary, rent paid or HRA.
  • HRA is allowed as exemption even if rent is given to any family member. In such case, it is advisable that rent is paid on a monthly basis through bank transfer (not a legal requirement).
  • The HRA deduction is allowed on the basis that employee should stay in rented property, even though he owns a house property in the same city. No provisions stop him from owning a house property.
  • Maintenance charges paid separately cannot be claimed under an exemption.
  • No exemption can be allowed u/s 80GG if HRA deduction is allowed under this section.
  • Exemptions under section 10(13A), section 80C (repayment of housing loan) and section 24b (interest on the home loan), can be claimed at the same time.