House Rent Allowance – How to compute exemption & Departmental control
Esha Agrawal
What is House Rent Allowance?
Employees generally receive a house rent allowance (HRA) from their employers.- This is a part of the salary package, in accordance with the terms and conditions of employment.
- HRA is given to meet the cost of a rented house taken by the employee for his stay.
- Now a days HRA is given to all employees irrespective of actual rent factor. In most of the cases it is 40% to 50% of basic pay of or 28% (approx.) of CTC and so is the major tax planning factor.
- The exemption on HRA is covered under Section 10(13A) of the Income Tax Act and Rule 2A of the Income Tax Rules.
How is HRA accounted for in the case of a salaried individual and a self-employed professional?
| Basis | Salaried individual | Self-employed professional |
| Under Section 10 (13A) of Income Tax Act, 1961, in accordance with rule 2A of Income Tax Rules. | Under section 80GG, which resembles section to 10(13A) but is subject to certain conditions. |
What are the dependent factors in calculating HRA exemption for the salaried individual?
Keep four aspects in mind:-
- HRA received,
- The actual rent paid and
- Where you reside, i.e., if it is a metro or non-metro. * caution – place of residence is significant and not place of
employment . - The place of residence is significant in HRA calculation.
Imp:- The above factors shall be calculated on monthly basis.
What are the conditions for availing exemption of HRA?
- He must stays in a rented house.
- He is in receipt of HRA from his employer.
- Employee must actually pay rent for the house which he occupies.
Caution – The rented premises must not be owned by him. In case one stays in an own house, nothing is deductible and the entire amount of HRA received is subject to tax.
What is the formula for calculating HRA exemption?
Minimum of the following three options :
- Actual house rent allowance received from your employer
- Actual house rent paid by you minus 10% of your basic salary
- 50% of your basic salary if you live in a metro or 40% of your basic salary if you live in a non-metro
This minimum of above is allowed as income tax exemption on house rent allowance.
Salary here means basic salary which includes dearness allowance if the terms of employment provide for it, and commission based on a fixed percentage of turnover achieved by the employee. All the components shall be taken on due basis.
Caution: salary is taxable on due or receipt whichever is earlier (sec 15) but for calculating HRA exemption all components shall be taken only on due basis.
Caution: The deduction will be available only for the period during which the rented house is occupied by the employee and not for any period after that.
Can I pay rent to my parents or spouse to avail HRA benefits?
| Relationship | parents | Spouse | Children | Other relatives |
| As per tax rule | No restriction | No restriction | No restriction | No restriction |
| Tax impact on recipient | To | To account for the same under 'Income from other sources'. [Sec 56] | To account for the same under 'Income from other sources'. [Sec 56] | To account for the same under 'Income from other sources'. [Sec 56] |
| Practical | Practically possible | In view of the relationship when you take up residence together, you are expected to do so and hence such a transaction does not bear merit under tax laws. Sham transactions can only spell trouble under scrutiny, so steer clear of these. | Practically possible | Practically possible |
What are proof for HRA claim?
- Proof of rent paid through rent receipts, for which only two need to be submitted, one for the beginning of the year and one towards the end of the financial year.
- It should have a one rupee revenue stamp affixed with the signature of the person who has received the rent, along with other details such as the rented residence address, rent paid, name of the person who rents it etc.
- PAN No of house owner in case rent paid by employee is more than ₹ 100,000. [Circlular No. 08/2013 F.No. 275/192/2013-IT(B) dated 10.10.2013]
Can I simultaneously avail tax benefits on my home loan and HRA and also show rental income in my tax return?
No restriction in case you have proper justification for the same.
Examples for calculation of exemption/deduction of HRA
X has received following amount during the previous year.
- Basic Salary – Rs. (5000*12) – Rs. 60,000/-
- Dearness Allowance (D.A) – Rs. (1000*12) – Rs. 12000/-
- House Rent Allowance (H.R.A.) – Rs. (2000*12) – Rs. 24000/-
- Actual Rent Paid – Rs.(2000*12) – Rs. 24000/-
Calculation
The minimum of the following amount shall be exempt
- Actual HRA received (2000*12) – Rs. 24000/-
- Rent Paid in excess of 10% of salary ( 24000-7200) – Rs. 16800
- 40% of Salary – Rs. 28800/-
Therefore, Rs. 16800 shall be exempt and the balance Rs. 7200 shall be included in gross salary.
Special attention:-
Practical cases seen:-
There are cases where employees pay their rent in cash and landlord refuses to provide any rent receipts.
What employees do-
Employees prepare rent receipts themselves and do forge signatures. Also there might be cases where employees actually do not pay any rent but still prepares rent receipts.
Legal consequences:-
These all are covered under forgery cases and offences under giving false evidence and fabricating false evidence of IPC (Section 191 & 192).
What employer should do if such cases are identified in his company:-
Sack the employee.
(For any queries author can be reached at eshaag6@gmail.com)
Authorisation of Income-tax authorities and their jurisdiction – Notification No. 50/2014
NOTIFICATION NO. 50/2014
(Income-tax)
New Delhi, the 22nd October, 2014
S.O. 2752(E).—In exercise of the powers conferred by sub-sections (1) and (2) of section 120 of the Income Tax Act, 1961 (43 of 1961), and in supersession of Government of India, Central Board of Direct Taxes, notification number S.O. 732(E) dated the 31st July, 2001, published in the Gazette of India, Extra-Ordinary, Part-II, Section 3, Sub-section (ii), dated the 31st July, 2001 except as respects things done or omitted to be done before such supersession, the Central Board of Direct Taxes, hereby,-
(a) directs that the Principal Commissioners of Income-tax or Commissioners of Income-tax specified in column (2) of the Schedule-I annexed hereto, having their headquarters at the places specified in the corresponding entries in column (3) of the said Schedule -I, shall exercise the powers and perform the functions in respect of such cases or classes of cases specified in the corresponding entries in column (6) of the said Schedule-I, of such persons or classes of persons being residents or not ordinarily residents in India as per section 6 of the Income-tax Act, 1961 and as specified in the corresponding entries in column (5) of the said Schedule-I, in such territorial areas specified in the corresponding entries in column (4) of the said Schedule-I, in respect of all incomes or classes of income thereof;
(b) directs that the Principal Commissioners of Income-tax or Commissioners of Income-tax specified in column (2) of the Schedule-II annexed hereto, having their headquarters at the places specified in the corresponding entries in column (3) of the said Schedule-II, shall exercise the powers and perform the functions in respect of any cases or classes of cases, of any persons or classes of persons in respect of all incomes or classes of income, in such territorial areas specified in the corresponding entries in column (4) of the said Schedule-II;
(c) authorises the Principal Commissioners of Income-tax or Commissioners of Income-tax specified in column (2) of the said Schedule-I to issue orders in writing for exercise of the powers and performance of the functions by the Additional Commissioners of Income-tax or Joint Commissioners of Income-tax, who are subordinate to them, in respect of such cases or classes of cases specified in the corresponding entries in column (6) of the said Schedule-I, of such persons or classes of persons specified in the corresponding entries in column (5) of the said Schedule-I, in such territorial areas specified in the corresponding entries in column (4) of the said Schedule-I, in respect of all incomes or classes of income thereof;
(d) authorises the Principal Commissioners of Income-tax or Commissioners of Income-tax specified in column (2) of the said Schedule-II to issue orders in writing for exercise of the powers and performance of the functions by the Additional Commissioners of Income-tax or Joint Commissioners of Income-tax, who are subordinate to them, in respect of any cases or classes of cases, of any persons or classes of persons in respect of all incomes or classes of income, in such territorial areas specified in the corresponding entries in column (4) of the said Schedule-II;
(e) authorises the Additional Commissioners of Income-tax or Joint Commissioners of Income-tax referred to in clauses (c) and (d) of this notification, to issue orders in writing for exercise of the powers and performance of the functions by the Assessing Officers, who are subordinate to them, in respect of such specified area or persons or classes of persons or incomes or classes of incomes or cases or classes of cases, in respect of which such Additional Commissioners of Income-tax or Joint Commissioners of Income-tax are authorised by the Principal Commissioners of Income-tax or Commissioners of Income-tax referred to in clause (c) and (d) of this notification.
Explanation :-
For the purposes of this notification,-
(i) "residing" means,-
(a) in the case of an individual, place of residence, unless otherwise provided in this notification;
(b) in the case of an Hindu undivided family, place of residence of the Karta; and
(c) in the case of a firm or an association of persons or a body of individuals or a local authority and all other artificial juridical persons other than companies, the place where the head office is located.
(ii) in cases of companies whose names begin with any of the numericals (hereinafter "numeric companies"), the Principal Commissioners of Income-tax or Commissioners of Income-tax who exercise the powers and perform the functions in respect of companies whose names begin with the alphabet which is same as that of the first alphabet of the name of the numeric companies in words, shall exercise the powers and perform the functions in respect of those numeric companies.
(iii) column (2) of the schedule specifies the designation of Income-tax authorities as "Principal Commissioner/ Commissioner of Income-tax". The designation is to be understood as Principal Commissioner of Income-tax or Commissioner of Income-tax. For example, "Principal Commissioner/ Commissioner of Income-tax, Ahmedabad-1" refers to an income tax authority, which could either be Principal Commissioner of Income-tax, Ahmedabad-1, or Commissioner of Income-tax, Ahmedabad-1.
Note:
The Income-tax authorities referred to in column (2) of the schedule annexed to this notification shall not exercise powers and perform functions, which have specifically been assigned through separate notification(s), to an Income-tax authority having designation other than those mentioned in column (2) below.
2. This notification shall come into force with effect from 15th day of November, 2014.
[F. No. 187/38/2014 (ITA.I)]
DEEPSHIKHA SHARMA, Director
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