HRA- HOUSE RENT ALLOWANCE

 

 

Section 10(13A) of the Income Tax Act, 1961 prescribes the provisions and rules for claiming the HRA.

 

HRA is an allowance is given by the employer to his employee to meet the rental expenses.

 

Though, the whole of the HRA received is not exempt from the tax, a part of the HRA is exempted from income tax. So, HRA is a partially exempted income.

 

The methodology for computing the exempted value of HRA received is given below. The least of the three can be claimed as exempted income from income tax.

a)     Actual HRA received

b)     Rent paid in excess of 10% of the Salary

c)     40%/50% of the Salary

 

Salary for the purpose of HRA calculation is Basic Salary plus Dearness Allowance.

50% of salary in metro areas (Delhi, Kolkata, Chennai, and Mumbai) and 40% of salary for non-metro cities is to be considered.

 

This exemption is not available to assessees declaring their income under the New Tax Regime u/s 115BAC that introduced in the Finance Act, 2020.

 

HRA exemption u/s 10(13A) is available only to salaried assesses. Non-salaried assesses can claim the deduction for rent paid under section 80GG.

 

The methodology for computing the deduction u/s 80GG is given below. Least of the three can be deducted from total income.

a)     Rs. 5,000 per month

b)     25% of the Adjusted Total Income

c)     Actual Rent paid in excess of 10% of the adjusted total income(ATI)

 

Adjusted Total Income is total Income (excluding long-term capital gains, short-term capital gains under section 111A and Income under Section 115A or 115D and deductions under 80C to 80U. Also, income is before making a deduction under section 80GG).

 

Both exemption u/s 10(13A) and deduction us/ 80GG cannot be claimed.

A salaried Assessee can choose exemption u/s 10(13A) or deduction u/s 80GG whichever is beneficial to him.

 

  

✍

CA Sanjay R Shetty

+91 77602 52581