Skip to main content

HRA and Income tax exemption In India

How the exemption against HRA is arrived at? and the conditions to be met to claim the exemption


   House rent allowance (HRA) is a form of allowance employees receive. HRA is exempted from tax under Section 10(13A) of the Income Tax Act. The amount of exemption is taken to be the least of amount of HRA received, excess of rent paid over 10 percent of salary, and 50 percent of salary in case the employee resides in a metro city. Otherwise, 40 percent of salary


   For the purpose of HRA, salary means basic salary plus dearness allowance and commission which is based on turnover achieved. One important condition is that you should have paid the rent for the house in which you live. Only such rent is considered for exemption. If you are staying in a house for which no rent is paid or payable, then HRA exemption is not available to you.


   Only the period for which rent has been paid is taken into account to calculate exemption, irrespective of the number of months for which rent has been paid. For purpose of deduction of tax, payment of rent by an employee drawing more than Rs 3,000 as HRA should be verified through rent receipts, though no rent receipt is required to avail the HRA perk.


   No portion of HRA will be exempt from tax if an assessee lives in his own
house or in a house for which no rent is paid by him. Also, if the actual rent paid by him is equal to or less than 10 percent of his pay.


   In other cases, exemption of HRA received is permissible to the extent admissible by applying the formulae.


   HRA is received from an employer by an employee as a part of the salary package, in terms with the terms and conditions of employment. HRA is given to meet the cost of rented premises taken by the employee for his stay.


EXEMPTION RULES

HRA exempt is the least of:

• The actual amount received by an assessee in the relevant period during which the rental accommodation was occupied by him during the previous year

• The amount by which the expenditure actually incurred by an assessee exceeds one-tenth of the salary due to the assessee in the relevant period

• In case the accommodation is situated in Mumbai, Calcutta, Delhi or Chennai, 50 percent of the salary due to the assessee in the relevant period

• In case the accommodation is situated at any other place, 40 percent of salary due to the assessee in the relevant period
As long as the rented accommodation is not owned by the assessee, the exemption of HRA will be available up to the limits specified.

HOW IT WORKS    

Assume, during the year 2010-11, a person who resides in Bangalore gets a salary of Rs 8 lakhs as basic and Rs 4 lakhs as HRA per annum. He pays an actual rent of Rs 3 lakhs per annum.


In this case, the HRA exempt would be calculated as:


   
Actual HRA received: Rs 4 lakhs
   Excess of rent paid over 10 percent of salary: Rs 2.2 lakhs (Rs 3 lakhs less Rs 80,000 which is 10 percent of salary)
   An amount equal to 40 percent of salary (as the accommodation is in Bangalore): Rs 3.2 lakhs (40 percent of Rs 8 lakhs)
   Since of these amounts Rs 2.2 lakhs is the least, it will be allowed as a deduction from salary for the year.


   NOTE: The deduction against HRA is not available in case an employee lives in his own house. The deduction is also not available in case an employee does not pay any rent for the accommodation used by him.


   The deduction will be available only for the period during which the rented premises is occupied by the employee, and not for any period after that.

 

Popular posts from this blog

SBI Magnum Tax Gain Scheme 1993 Applcation Form

    https://sites.google.com/site/mutualfundapplications/tax-saving-mutual-funds-elss     Investment Details Basics Min Investment (Rs) 500 Subsequent Investment (Rs) 500 Min Withdrawal (Rs) -- Min Balance -- Pricing Method Forward Purchase Cut-off Time (hrs) 15 Redemption Cut-off Time (hrs) 15 Redemption Time (days) -- Lock-in 1095 days Cheque Writing -- Systematic Investment Plan SIP Yes Initial Investment (Rs) -- Additional Investment (Rs) 500 No of Cheques 12 Note Monthly investment of Rs 1000 for 6 months and quarterly investment of Rs 1500 for 4 quarters.

Birla Sun Life Tax Plan Online

Invest Birla Sun Life Tax Plan Online   An Open-ended Equity Linked Savings Scheme (ELSS) with the objective to achieve long-term growth of capital along with income tax relief for investment.   After a bad patch from 2008 to 2010, Birla Sun Life Tax Plan has made a big comeback in the last five years, with a particularly good run since 2014. The fund's rankings, which had slipped to two stars in 2011-12, recovered sharply to three-four stars in the last three years. The fund has delivered a particularly large outperformance over its benchmark and peers in the last couple of years. The fund's investment strategy focuses on a diversified and high-quality portfolio, with parameters such as capital ratios and balance-sheet strength used to judge quality. It uses a combination of top-down and bottom-up approaches to take sector/stock positions. The fund avoids highly leveraged plays. Staying more or less fully invested at all times, the fund parks roughly half of its portfoli

Should you Roll Over 1 year Fixed Maturity Plans?

The period between January and March typically sees an uptick in the launch of fixed maturity plans, or FMPs. Not this year. Instead, fund houses are busy rolling over or extending the tenure of their one- year FMPs launched last year to three years. Investors in one- year FMPs have a choice. Either redeem units or roll over to three years. If you exit now, your gains will be added to your income and taxed in line with your individual slab rate of 10, 20 or 30 per cent. If you stay invested for two more years, you pay 20 per cent tax with indexation benefit. Yields have softened in the past few months on expectations of a rate cut. If the central bank continues its soft monetary stance, yields are likely to fall further. In such a scenario, it makes sense for investors, particularly those in the 30 per cent tax bracket, to roll over their investments and lock in at a higher yield now. In a surprise move, the Reserve Bank of India cut repo rate by 25 basis

Impact of Demonetisation

The government's move to demonetise `500 and `1,000 currency notes will immediately impact reserve money and money supply in the system along with the balance sheet of the Reserve Bank of India, the sole authority in the country for accepting currency notes and coins as legal tender. ET explains the interplay of currency, reserve money and money supply. 1. What is currency in circulation? It is the total value of currency (coins and paper currency) that has ever been issued by the central bank minus the amount that has been withdrawn by it. Currency in circulation comprises currency notes and coins with the public and cash in hand with banks. It is a major liability component of a central bank's balance sheet. 2. What is reserve money? It is essentially the central bank's money . It is also called high-powered money , base money and central bank money . As per the definition, reserve money equals currency in circulation plus bankers' deposits

Mutual Fund Review: IDFC Premier Equity Fund

  IDFC Premier Equity Fund, which falls under the presumed high risk group of mid- and small-cap schemes, can rely on astute and timely equity picks. These make it less vulnerable to fluctuations compared with others in the category   IDFC Premier Equity Fund is designed to invest in upcoming, but promising businesses available at cheap valuations, and hold on to these businesses until they reap desired returns. The experiment has been successful so far, and IDFC Premier Equity has emerged as one of the top performing mutual fund schemes in the mid- and smallcap category of equity schemes.    While the scheme is an open-ended equity fund, i.e. open for subscriptions throughout the year, it has a unique philosophy to limit fresh inflows. Thus, while an investor can always take the systematic investment plan ( SIP ) route to invest in the scheme throughout the year, inflows through a lumpsum investment have been restricted. Since inception, IDFC Premier Equity has been opened for l
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now