(HRA) House Rent Allowance u/s 10(13A) exemption, confused!
Every employee heard and seen this term “(HRA) House Rent Allowance” in their salary slip.
The question is “Is HRA taxable?”
The answer is “Yes and No”.
In this article, you will understand the whole story behind house rent tax exemption, how we can get tax exemption u/s 10(13A).
In one of my previous article “What is Form 10 BA – “Declaration u/s 80GG” – House Rent”
Under section 80G, you can avail the benefit of house rent up to ₹ 60000 (₹ 5000/month), only on basic condition:
“You have not received HRA from your employee in any form during the financial year.”
If you receive HRA house rent allowance from your employer as compensation of rent payment.
Condition required to avail the benefit of section 10(13A)
- An employee is the residence of India, rented a house and pay rent to the house owner.
- Must get HRA in any form from its employer.
- You must get a proper receipt of rent paid in prescribed format from the owner of the house.
If you are not paying any rent, the whole amount received under HRA is taxable.
The basic fundamental of how HRA is decided?
Actual HRA is calculated on three basis concept:
- The amount of HRA received from the employer.
- Actual rent paid less (10%) of the basic salary.
- If an employee living in the metro (50% of basic salary) and for Non-metro (40% of basic salary).
After calculation in all three scenarios, the amount comes least will be exempted u/s 10(13A).
HRA calculation for income tax
For better transparency lets take an example:
I share my own salary structure.
Basic salary: ₹ 30000
HRA: ₹ 13000
Convenience: ₹ 2000
Special allowance: ₹ 3000
Medical: ₹ 1250
LTA: ₹ 5000
TOTAL EARNING: ₹ 54250
Taking the above example we will work on all three scenarios for hra tax exemption: (As I am living in Non-metro, eligible for 40% of basic salary)
- Scenario A – The amount of HRA received from the employer – ₹ 13000/month i.e. 13000X12 (months) = ₹ 156000 per annum.
- Scenario B – Actual rent paid less (10%) of the basic salary – 10% of basic salary, 10% of ₹ 30000 = ₹ 3000 per month i.e. ₹ 36000 per year, actual rent paid ₹ 10,000 per month i.e. ₹ 1,20,000. The result would be ₹ 120000 – ₹ 36000 = ₹ 84000.
- Scenario C – 40% of the basic salary i.e. 40% of ₹ 30000 = ₹ 12000/month, ₹ 1,44,000 per year.
In all the above scenario, ₹ 84000 is exempted, because of the least amount, and rest amount i.e. ₹156000 – ₹84000 = ₹ 72000 is taxable.
If an employee is resident in metro he is allowed to take basic salary @ 50% in scenario C.
House rent allowance section is difficult to understand, but it will help the employee and they will avail the benefits of all house rent allowance rules and regulations.