Know about Tax Deduction on House Rent Allowance (HRA)

House rent allowance (HRA) is received by the salaried class. A deduction is permissible under Section 10(13A) of the Income Tax Act, in accordance with Rule 2A of the Income Tax Rules. One can claim exemption on HRA under the Income Tax Act if he/she stays in a rented house and get a HRA from their employer.

The HRA deduction is based on Basic Salary, HRA received, the actual rent paid and City of residence.  For Mumbai, Kolkata, Delhi or Chennai, the tax exemption on HRA is upto 50 percent of the basic salary, while for other cities it is upto 40 percent of the basic salary. Actual rent allowance the employer provides as part of salary in the relevant period during which the rental accommodation was occupied Actual rent paid for the house, less 10 per cent of basic pay 50 percent of basic salary if you reside in Mumbai, Calcutta, Delhi or Chennai, or 40 per cent if you reside in other cities.

In order to claim the exemption, the rent must actually be paid for the rented premises which you occupy. Also, the rented premises must not be owned by you. As long as the rented house is not owned by you, the exemption of HRA will be available up to the limits specified.

For the purpose of this deduction, salary means basic salary and includes dearness allowance, if the terms of employment provide it, and commission based on a fixed percentage of turnover achieved by the employee.

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. It is to be noted that the tax benefits for home loans and HRA are two separate aspects.

In case 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 a home loan.

You need to submit proof of rent paid through rent receipts, duly signed and stamped, along with other details such as the rented residence address, name of the owner, period of rent etc without which you might not get an exemption.

Working of Deduction

Least of:

Actual HRA received

50 percent of basic salary

Excess of rent paid over 10 percent of HRA

For example, if your basic salary is 10000 and your HRA is 5000.

Scenario1: If you pay the rent of Rs 5000/- then you can claim deduction of Rs 4500/- only

Scenario2: If you pay the rent of Rs 5500/- or more, you can claim deduction of Rs 5000/-

Related Articles by Categories