Some conditions to avail a tax deduction on HRA
Employees usually get a house rent allowance (HRA) from employers. HRA is given to meet the cost of rented premises taken by the employee for his stay. A person can claim exemption on his HRA under the Income Tax Act, if he stays in a rented house and is in receipt of HRA from his employer.
The exemption of HRA is covered under Section 10(13A) of the Income Tax Act and Rule 2A of the Income Tax Rules.
The conditions for allowing the exemption on HRA are - the assessee for the rented premises, which he occupies, and he must not own the rented premises, must actually pay the rent.
The amount of HRA exempt is the least of - the actual amount of allowance received by the assessee for the period during which the rental accommodation was occupied in the previous year, and the amount by which the actual rental expense incurred by the assessee exceeds one-tenth of the salary in the relevant period.
If the accommodation is situate at Mumbai, Calcutta, Delhi or Chennai, 50 percent of the salary in the relevant period. If it is situated at any other place, 40 percent of the salary in the relevant period.
Salary, for the purpose of arriving at eligible deduction, means basic salary and includes dearness allowance and commission based on a fixed percentage of turnover achieved by the employee.
The deduction for HRA is not available in case the employee lives in his own house. It is also not available in case the employee does not pay any rent for the accommodation used by him. It will be available only for the period during which the rented premises is occupied by the employee and not for any period after that.
Arriving at HRA
To take an example, during the year 2007-08, an employee resides in Bangalore and gets a salary of Rs 5 lakhs as basic salary and Rs 2.5 lakhs as HRA. He pays an actual rent of Rs 2 lakhs.
In such a case the amount of HRA exempt would be calculated as:
1) Actual HRA received - Rs 2.5 lakhs
2) Excess of rent paid over 10 percent of salary - Rs 2 lakhs less Rs 50,000 (10 percent of salary) - Rs 1.5 lakhs.
3) An amount equal to 40 percent of salary, as the accommodation is in Bangalore - 40 percent of Rs 5 lakhs - Rs 2 lakhs.
As out of these Rs 1.5 lakhs is the least, it will be allowed as a deduction from salary for the year.
In case the accommodation is situated in Delhi the limit of 40 percent is increased to 50 percent. The deduction on HRA is available even in case an employee has his own flat and has rented it out.
Employees usually get a house rent allowance (HRA) from employers. HRA is given to meet the cost of rented premises taken by the employee for his stay. A person can claim exemption on his HRA under the Income Tax Act, if he stays in a rented house and is in receipt of HRA from his employer.
The exemption of HRA is covered under Section 10(13A) of the Income Tax Act and Rule 2A of the Income Tax Rules.
The conditions for allowing the exemption on HRA are - the assessee for the rented premises, which he occupies, and he must not own the rented premises, must actually pay the rent.
The amount of HRA exempt is the least of - the actual amount of allowance received by the assessee for the period during which the rental accommodation was occupied in the previous year, and the amount by which the actual rental expense incurred by the assessee exceeds one-tenth of the salary in the relevant period.
If the accommodation is situate at Mumbai, Calcutta, Delhi or Chennai, 50 percent of the salary in the relevant period. If it is situated at any other place, 40 percent of the salary in the relevant period.
Salary, for the purpose of arriving at eligible deduction, means basic salary and includes dearness allowance and commission based on a fixed percentage of turnover achieved by the employee.
The deduction for HRA is not available in case the employee lives in his own house. It is also not available in case the employee does not pay any rent for the accommodation used by him. It will be available only for the period during which the rented premises is occupied by the employee and not for any period after that.
Arriving at HRA
To take an example, during the year 2007-08, an employee resides in Bangalore and gets a salary of Rs 5 lakhs as basic salary and Rs 2.5 lakhs as HRA. He pays an actual rent of Rs 2 lakhs.
In such a case the amount of HRA exempt would be calculated as:
1) Actual HRA received - Rs 2.5 lakhs
2) Excess of rent paid over 10 percent of salary - Rs 2 lakhs less Rs 50,000 (10 percent of salary) - Rs 1.5 lakhs.
3) An amount equal to 40 percent of salary, as the accommodation is in Bangalore - 40 percent of Rs 5 lakhs - Rs 2 lakhs.
As out of these Rs 1.5 lakhs is the least, it will be allowed as a deduction from salary for the year.
In case the accommodation is situated in Delhi the limit of 40 percent is increased to 50 percent. The deduction on HRA is available even in case an employee has his own flat and has rented it out.
