What is House Rent Allowance?
House Rent Allowance (HRA) is given to members of the staff in order to meet rent expenditures. If HRA exemption rules are followed, HRA exemption is offered under section 10(13A) and the available deduction is least of three pre-stated conditions. In other words, the allowances made available by the employers to their workforce for meeting the housing rent expenses for their lodging is referred to as House Rent Allowance. The amount of House Rent Allowance is taxed under the head – ‘Income from Salaries’, and the amount computed post the exemption is added to the entire salary and taxed according to the income tax slab rates.
House Rent Allowance Exemption
The least of the following three amounts computed would be exempt:
- Actual House Rent Allowance received
- Actual rent paid subtracted by 10% of the salary (salary encompasses dearness allowance, basic pay, and charge on revenue based on fixed percentage. The salary is considered from the time an employee joins an organisation)
- 40% of the salary for non-metros (salary encompasses dearness allowance, basic pay, and charge on revenue based on fixed percentage). The salary is considered from the time an employee joins an organization for metro cities is 50%
Let’s understand the HRA computation through an illustration. Mr. Kabir Jain has a job in Delhi, and stays in a rented accommodation. According to the rent agreement signed by Mr. Jain, he is liable to pay the owner of the house a monthly rent of Rs 15,000 during a financial year. As per his salary structure breakup, Mr. Jain get a basic salary of Rs. 25,000 per month along with Dearness Allowance of Rs 2,000. Additionally, Mr. Jain also gets a House Rent Allowance of Rs. 100,000 from his employer during a financial year.
Below mentioned table will help to understand the HRA computation, and how to arrive at the correct exemption amount.
| Serial number |
Particulars |
Amount |
Amount |
| 1 |
Actual House Rent Allowance received |
|
Rs.100,000 |
| 2 |
Rent paid (Rs.15,000 for each month *12 months)
subtracted by 10% of Basic + Dearness Allowance
10% of [(Rs.25,000 for each month *12) + (Rs.2,000 for each month *12)] |
Rs.180,000 |
Rs.147,600 |
| Rs.32,400 |
| 3 |
50% of [(Rs.25,000 for each month *12) + (Rs.2,000 for each month *12)](50% is considered as the accommodation is in Delhi) |
|
Rs.162,000 |
| 4 |
Exempt House Rent Allowance = least of 1, 2 & 3 |
|
Rs.100,000 |
House Rent Allowance Rules & Regulations
- An employee can even claim House Rent Allowance exemption if rent is given to a family member. In such a scenario, it is logical that pay rent on a monthly basis via bank transfer (though it is not a legitimate requirement)
- Exemptions are computed on once-a-month basis in case of any alteration in the city (non-metro to metro and vice-versa), rent paid or amount of salary
- Exemptions under section 10(13A), Section 24B (interest on the home loan), and section 80C (repayment of housing loan) can all be claimed at the same time
- House Rent Allowance deduction is permitted on the basis that an employee must be staying in a rented accommodation – it doesn’t matter if he/she owns a house in the same city; no provision can stop him/her from possessing a house
- If no rent is paid by an employee then no House Rent Allowance exemption can be demanded, i.e., authentic payment of rent is obligatory
- Maintenance charges paid independently cannot be claimed under an exemption.
House Rent Allowance for Central Government Employees
As per notification from the central government, the revised rates of HRA are announced and implemented by the central government in 2017. Previously, the HRA rates were 30% for X (Cities having population of 50 lakh and above), 20% for Y (Cities having population between 5 Lakh to 50 Lakh) and 10% for Z (Cities having population less than 5 Lakh).
-
The seventh pay commission put his recommendation to reduce these existing rates and the new rates are implemented. The same is mentioned in the table below –
| Classification of Cities/towns |
Revised rates of HRA per month (Percentage of basic pay only) |
| X |
24% |
| Y |
16% |
| Z |
8% |
-
Later, when the implemented reduced rates are proved insufficient for employees falling in lower pay bracket, it has been decided that minimum amount of HRA should not be less than –
- Rs. 5400 for X category of cities
- Rs. 3600 for Y category of cities
- Rs. 5400 for X category of cities
- Another condition is that if the dearness allowance of an employee exceeds 25%, HRA rates for those employees will be 27%, 18% & 9% for X, Y & Z category of cities whereas if the dearness allowance of an employee exceeds 50%, then HRA rates for those employees will be further revised to 30%, 20% & 10% for X, Y&Z category of cities.
- According to the revised pay structure, the term “Basic pay” means the pay drawn in the prescribed pay levels in the pay matrix. It does not include military service pay (MSP), Non-practicing allowance or any other pay like special pay etc.
- These orders were effective from 1st July 2017.
- These orders are applicable to all the civilian central government employees. It is also applicable to all the civilian employees paid from defense services estimates. Separate orders will be issued by the ministry of Defense and ministry of railways for personnel’s serving in armed forced and railway employees.
- Same orders are issued to the Indian audit & accounts department but after doing consultation with controller & auditor general of India.
House Rent Allowance FAQs
An individual who is staying in a rented accommodation is eligible to claim HRA. It must be noted that HRA is not applicable for self-employed people and those staying in their own houses.
There may be circumstances where an individual owns a house, however, still decides to stay in a rented accommodation. In such a condition an individual can claim HRA as well as exemptions on the home loan interest.
Yes, this is only valid if a tenant pays rent in excess of Rs 100,000 to the landlord during a financial year. A scanned copy of the landlord’s PAN card must be provided.
In case the monthly rent paid is less than or equal to Rs 3,000, then, a tenant is not required to produce any rent receipts. However, if the rent amount exceeded Rs 3,000 then it will be the sole responsibility of the tenant to produce the rent receipts and
file a tax return at the end of a financial year.
Theoretically there is nothing unlawful about giving rent to a spouse but it is mandatory for the spouse to show the rent received as an income and declare it. It is advisable to keep a record i.e. online transfer, check etc. of such a transactions – it can be shown to the IT department in case of a discrepancy.
No, the HRA can only be claimed for one house, and it is mostly for the house in an individual works.
In order to claim HRA exemption, imperative documents include rent receipts, landlords PAN card or a written consent from the landlord stating that he/she doesn’t have a PAN card.
The
Dearness Allowance (DA) is related with retirement reimbursements, whereas, HRA is a type of compensation offered to an employee to support the rental amount towards lodging. Therefore, HRA and DA are two dissimilar components and cannot be merged.
No, maintenance charges cannot be clubbed with HRA. An individual will not be able to claim the house maintenance fee as HRA. The maintenance charges are not measured as the landlord's income to be computed for his/her income tax.
Similar to maintenance charges, electricity charges too cannot be included in HRA. The electricity charges are not treated as landlord’s income since it is paid to the electricity supplier.
In case the annual rent amount is more than 100,000 during a financial year, then it is compulsory to provide the PAN card of the landlord. The PAN card photocopy/Xerox will be needed as evidence while submitting the HRA claim. However, if a landlord cannot provide his/her PAN details, then a declaration must be submitted, along with the rent receipts, providing the landlord's address, name, rent amount received by him/her, and the period of accommodation.
Yes, House Rent Allowance is covered under section 10(13A).
An individual can claim HRA while staying with his/her parents. He/she can pay rent to parents and claim the allowance provided by an employer – a rent agreement must be signed between both the parties.
