House Rent Allowance (HRA) :
Calculation & Taxability (source from internet )
House
Rent Allowance (HRA) is given by the employer to the employee to meet the
expenses in connection with rent of the accommodation which the employee might
have to take for his residential purpose. This House Rent Allowance so paid by
the employer to his employee is taxable under head “Income from Salaries” to
the extent it is not exempt u/s 10(13A)
HRA received
xxx
(Less) Exempt
u/s 10(13A) (xxx)
(=) Taxable
Amount xxx
The balance amount
after claiming HRA Exemption would be added in the total salary of the employee
and would be taxed as per the
House Rent Allowance
exempt u/s 10(13A)
HRA
received is exempt u/s 10(13A) to the extent of the minimum of the following 3
amounts: Actual House Rent allowance received by the employee in respect of the
relevant period Excess of Rent paid for the accommodation occupied by him over
10% of the salary for the Relevant Period
50%
of the salary where the residential house is situated in Mumbai,
Calcutta, Delhi or Chennai and 40% of the Salary where the house is situated at
any other place for the relevant period.
Points to be noted
1.Relevant period means the period during which the said
accommodation was occupied by the assessee during the financial year.
2. Salary for this purpose includes dearness
allowance if the terms of the employment so provide but exclude all other
allowances and perquisites. This dearness allowance will be included to the
extent it is part of salary as per the terms of employment. All other
allowances
and perquisites will not be included.
3. Where the employee
has not actually incurred expenditure on payment of rent or stays in his own
accommodation, no exemption ofHouse Rent Allowance is available.
4. If the Rent paid
by the employee to his landlord is more than Rs. 1 Lakh in a year, the PAN Card
No. of the Landlord would be required to be furnished
Thus, the House Rent
Allowance Exemption is based on the following factors
1. Salary
2. Place of Residence
3. Rent Paid
4. HRA Received
Since
there is a possibility of change in any of the above factors during the
previous year, exemption for HRA should not always be calculated on an Annual
basis. As long as there is no change in any of the above factors, it can be
calculated together for that period.
Whenever, there is a
change in any of the above factors, it should be separately calculated till the
next change.
Illustration
Ram is entitled to a basic salary of Rs. 5,000pm and dearness
allowance of Rs. 1000 per month, 40% of which forms part of Retirement Benefits.
He is also entitled for House Rent
Allowance of Rs. 2,000 pm. He actually pays Rs. 2000 pm as
rent for a house in Delhi.
In the above scenario, we first
have to calculate the salary of Ram
Salary (5000X12)
Rs.60,000
Dearness Allowance (40% of
12,000) Rs. 4,800
Total Salary for the purpose of
computation of HRA Rs. 64,800
Now, the minimum of the following
3 amounts shall be exempted from tax
a) Actual HRA Received (2000X12) Rs.
24,000
b) Rent Paid in excess of 10% of
salary (24000-6480) Rs. 17,520
c) 50% of Salary Rs. 32,400
Therefore, Rs.
17520 shall be the House Rent Allowance (HRA) that is exempted from levy of
income tax and the balance Rs. 6480 shall be included in the gross total
salary.