House Rent Allowance (HRA) Introduction
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.
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 organisation); for metro cities it is 50%
House Rent Allowance (HRA) Calculation
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
|1||Actual House Rent Allowance received||Rs.100,000|
Rent paid (Rs.15,000 for each month *12 months)
10% of [(Rs.25,000 for each month *12) + (Rs.2,000 for each month *12)]
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)
|4||Exempt House Rent Allowance = least of 1, 2 & 3||Rs.100,000|
House Rent Allowance Exemption Rules
House Rent Allowance FAQs
Q 1: Who is eligible to claim HRA?
Ans 1: 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
Q 2: Can an individual claim House Rent Allowance and deduction on home loan interests?
Ans 2: 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
Q 3: Does a lodger/tenant need to provide permanent account number (PAN) of my landlord?
Ans 3: Yes, this is only valid if a tenant pays rent in excess of ?100,000 to the landlord during a financial year. A scanned copy of the landlord’s PAN card must be provided
Q 4: Are rent receipts required while claiming HRA?
Ans 4: In case the monthly rent paid is less than or equal to ?3,000, then, a tenant is not required to produce any rent receipts. However, if the rent amount exceeded ?3,000 then it will be the sole responsibility of the tenant to produce to rent receipts will filing a tax return at the end of a financial year
Q 5: An individual stays in a house owned by his/her spouse and the rent is paid to the spouse. Can I claim HRA?
Ans 5: 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
Q 6: Can HRA be claimed for two houses?
Ans 6: No, the HRA can only be claimed for one house, and it is mostly for the house in an individual works.
Q 7: What documents are needed for HRA exemption?
Ans 7: 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.
Q 8: Is Dearness Allowance (DA) contained within the HRA?
Ans 8: 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.
Q 9: Can maintenance charges be included in HRA?
Ans 9: 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.
Q 10: Does HRA take account of electricity charges?
Ans 10: 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.
Q 11: Can an individual claim HRA without landlord’s PAN card?
Ans 11: 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 an 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.
Q 12: Does HRA come under 80C?
Ans 12: House Rent Allowance is covered under section 10(13A).
Q 13: How to claim HRA while living with parents?
Ans 13: 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.