A Glossary of HR Terminology

Glossary of Human Resources Management and Employee Benefit Terms

A Glossary of HR Terminology

Glossary of Human Resources Management and Employee Benefit Terms

HR Wordbook > Housing Rent Allowance – HRA

HR Wordbook > Housing Rent Allowance – HRA

Housing Rent Allowance – HRA

Housing Rent Allowance – HRA

Housing Rent Allowance – HRA

The House Rent Allowance (HRA) is an important component of the salary that is paid by employers for meeting the accommodation requirements of employees. Even self-employed individuals can claim tax benefits for this.

 

What is HRA?

HRA or House Rent Allowance is a salary component paid by the employer to employees for meeting the accommodation expense of renting a place for residential purposes. HRA forms an integral component of a person’s salary. HRA applies to both salaried as well as self-employed individuals.

HRA for salaried people is accounted for under section 10 (13A) of the Income Tax Act in accordance with rule 2A of Income Tax rules. Similarly, self-employed individuals are not considered for HRA exemption under this section but can claim tax benefits under section 80GG of Income Tax Act.

 

How to Calculate HRA Exemption?

In the section below, the process of HRA exemption is described in detail. But before this, let us take a look at the factors that affect HRA calculation and tax exemption on it.

Factors that affect HRA Calculation:

  • Salary
  • HRA Received
  • Actual rent paid
  • City of residence (metro, non-metro or rural)


HRA Calculation:

Let us take an example of Amit who stays in Delhi and earns a salary of Rs.40,000 per month.

Amit apartment rent

Rs.20,000 per month

Amit is eligible for a HRA equal to 50% of the basic salary

50% of Rs.40,000 = Rs.20,000

Actual HRA he receives from his company is

Rs.25,000

Excess of rent paid over 10% of total salary

 

Hence, net taxable HRA for Amit

Rs.25,000 – Rs.16,000 = Rs.9,000

 

HRA Exemption/Deduction

Salaried employees are eligible for HRA exemption for the income tax that they are required to pay each financial year. As per the Income Tax Act, for the calculation of house rent allowance, the least of the following three components is taken into consideration –

  • Actual HRA received by the employer
  • 50% or 40% of the basic salary depending upon a metro or a non-metro location, respectively
  • Rent paid minus 10% of basic salary

Where, basic salary refers to basic + DA + commission on sale at fixed rate.

 

HRA Rules

Some of the most prominent rules pertaining to house rent allowance are mentioned below.

  • 40% of the basic salary is calculated as HRA for people living in non-metro cities while the same is 50% for employees in metro cities like Mumbai or Chennai.
  • In order to avail HRA benefit it is not necessary that you pay rent only to a landlord. Individuals can pay rent to their parents and show relevant receipts to claim HRA exemption.
  • However, you cannot claim HRA exemption by showing that you pay rent to your spouse. This is not permissible under the income tax law.
  • Rent receipts need to be submitted as proof in order to avail tax exemption benefit.
  • PAN card details of the landlord need to be furnished so that relevant tax deductions can be made from his/her income from property (rent received).
  • PAN details of landlord are required only if the rent paid exceeds one lac rupees per annum.
  • HRA received by an employee who is residing in his/her own house is not exempt from income tax.

 

How to make HRA Claim?

To make HRA or house rent allowance claim, individuals are required to submit their rent receipts along with PAN details of their landlord in case the rent paid in a financial year is more than Rs.1 Lac. A circular related to the same has mentioned that in case the landlord does not possess a PAN number then the Income Tax department has multiple technical platforms through which it verifies the information furnished by tax-payers. As such, any fabrication of information is not a good idea.

Housing Rent Allowance – HRA

The House Rent Allowance (HRA) is an important component of the salary that is paid by employers for meeting the accommodation requirements of employees. Even self-employed individuals can claim tax benefits for this.

 

What is HRA?

HRA or House Rent Allowance is a salary component paid by the employer to employees for meeting the accommodation expense of renting a place for residential purposes. HRA forms an integral component of a person’s salary. HRA applies to both salaried as well as self-employed individuals.

HRA for salaried people is accounted for under section 10 (13A) of the Income Tax Act in accordance with rule 2A of Income Tax rules. Similarly, self-employed individuals are not considered for HRA exemption under this section but can claim tax benefits under section 80GG of Income Tax Act.

 

How to Calculate HRA Exemption?

In the section below, the process of HRA exemption is described in detail. But before this, let us take a look at the factors that affect HRA calculation and tax exemption on it.

Factors that affect HRA Calculation:

  • Salary
  • HRA Received
  • Actual rent paid
  • City of residence (metro, non-metro or rural)


HRA Calculation:

Let us take an example of Amit who stays in Delhi and earns a salary of Rs.40,000 per month.

Amit apartment rent

Rs.20,000 per month

Amit is eligible for a HRA equal to 50% of the basic salary

50% of Rs.40,000 = Rs.20,000

Actual HRA he receives from his company is

Rs.25,000

Excess of rent paid over 10% of total salary

 

Hence, net taxable HRA for Amit

Rs.25,000 – Rs.16,000 = Rs.9,000

 

HRA Exemption/Deduction

Salaried employees are eligible for HRA exemption for the income tax that they are required to pay each financial year. As per the Income Tax Act, for the calculation of house rent allowance, the least of the following three components is taken into consideration –

  • Actual HRA received by the employer
  • 50% or 40% of the basic salary depending upon a metro or a non-metro location, respectively
  • Rent paid minus 10% of basic salary

Where, basic salary refers to basic + DA + commission on sale at fixed rate.

 

HRA Rules

Some of the most prominent rules pertaining to house rent allowance are mentioned below.

  • 40% of the basic salary is calculated as HRA for people living in non-metro cities while the same is 50% for employees in metro cities like Mumbai or Chennai.
  • In order to avail HRA benefit it is not necessary that you pay rent only to a landlord. Individuals can pay rent to their parents and show relevant receipts to claim HRA exemption.
  • However, you cannot claim HRA exemption by showing that you pay rent to your spouse. This is not permissible under the income tax law.
  • Rent receipts need to be submitted as proof in order to avail tax exemption benefit.
  • PAN card details of the landlord need to be furnished so that relevant tax deductions can be made from his/her income from property (rent received).
  • PAN details of landlord are required only if the rent paid exceeds one lac rupees per annum.
  • HRA received by an employee who is residing in his/her own house is not exempt from income tax.

 

How to make HRA Claim?

To make HRA or house rent allowance claim, individuals are required to submit their rent receipts along with PAN details of their landlord in case the rent paid in a financial year is more than Rs.1 Lac. A circular related to the same has mentioned that in case the landlord does not possess a PAN number then the Income Tax department has multiple technical platforms through which it verifies the information furnished by tax-payers. As such, any fabrication of information is not a good idea.