House rent allowance is the amount paid by employer to employees to meet the expenses of rent of the accommodation which the employee has hired for his residential purpose. .. An employee can claim exemption on his HRA under the Income Tax Act if he/she satisfy the conditions laid by act. House Rent Allowance paid by the employer to his employee is taxable under head Income from Salaries to the extent it is not exempted u/s 10(13A) of the act.
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Aspects to be considered in calculation of HRA :
- Salary
- Actual Rent Paid
- HRA Received
- Place where you reside.
1.Salary :
Salary for this purpose means “”Basic pay + Dearness Allowance + Commission as a fixed percentage on turnover and excludes all other allowances and perquisites.””
salary is calculated on due basis.It means if you receive salary arrears of earlier years or advance salary belonging to future years, it will not be considered while calculating the tax exemption.
2. Actual rent paid is the amount of total rent you pay for the accommodation.
3. HRA actually received is the total amount paid by the employer to employee.
4. Place of residence :
It place a crucial role in calculation of HRA because % of exemption depends on the status of the city you are residing (as explained below)
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HRA calculation :
Least of the following is exempted
1. Rent paid minus 10% of salary.
2. Actual House Rent allowance received by employee.
3. 50% of the salary where the residential house is situated in Mumbai, Calcutta, Delhi or Chennai. {OR}
40% of the Salary if the house is situated at any other place for the relevant period.
We reduce the total amount HRA received by the above said calculation and what ever the balance amount we arrive at we should include that in our total income.
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Conditions to be met :
For claiming exemption in respect of HRA following conditions should be fulfilled by the employee
1.Should stay in a rental accommodation :
Employees should have hired a rental accommodation and paid for the same. If he / she stays in own accommodation then in such case they can not claim HRA exemption .
2.Available only for the period of stay in rental accommodation :
The deduction is available only for the period during which the rented house is occupied by the employee and not for any additional period after that.
3.Rent should be paid actually otherwise they are not eligible for the exemption.
4.Submission of PAN details of employer subject to the conditions laid down in the act.
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Home loan benefit and HRA simultaneously :
HRA and interest on loan taken for Home are entirely distinct from each other and until you stop paying something for your accommodation as rent you can claim HRA along with interest on home loan.