Calculate your House Rent Allowance (HRA) exemption know HRA exemption Calculation Formula and download HRA Calculator in excel format for easy calculation of exempt HRA Allowance out of Total HRA received by Salaried Assessee.
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.The Income Tax Act allows for deduction in respect of the HRA paid to employees. The exemption on HRA is covered under Section 10(13A) of the Income Tax Act and Rule 2A of the Income Tax Rules. It is to be noted that the entire HRA is not deductible. HRA is an allowance and is subject to income tax.
An employee can claim exemption on his HRA under the Income Tax Act if he stays in a rented house and is in receipt of HRA from his employer. In order to claim the deduction, an employee must actually pay rent for the house which he occupies.
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. As long as the rented house is not owned by the assessee, the exemption of HRA will be available up to the the 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. 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.
Meaning of Salary for calculation the exemption of HRA
- Salary means (Basic + D.A + Commission based on fixed percentage on turnover).
- Salary is to be taken on due basis in respect of the period during which the period accommodation is occupied by the employee in the previous year.
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.
Frequently Asked Questions:-
How is HRA accounted for in the case of a salaried individual and a self-employed professional?
HRA (house rent allowance) is accounted for in the case of salaried people under Section 10 (13A) of Income Tax Act, 1961, in accordance with rule 2A of Income Tax Rules. On the other hand, self-employed professionals cannot be considered for HRA exemption under this act, as they do not earn a salary. However, they can claim benefits on the house rent expenses incurred under section 80GG, which resembles section to 10(13A) but is subject to certain conditions.
What are the dependent factors in calculating HRA for the salaried individual?
When you are calculating HRA for tax exemption, you take into consideration four aspects which includes salary, HRA received, the actual rent paid and where you reside, i.e., if it is a metro or non-metro. If these aspects remain constant through the year, then tax exemption is calculated as a whole annually, if this is subject to change, as in a rent hike, pay hike or shift in residence etc., then it is calculated on a monthly basis. It is usually rare for all the values to remain constant in a financial year.
The place of residence is significant in HRA calculation as for a metro the tax exemption for HRA is 50% of the basic salary while for non-metros it is 40% of the basic salary. This holds true especially when you work at a metro and reside at a non-metro. In this case, your city of residence only will be considered for calculating your HRA.
Can I pay rent to my parents or spouse to avail HRA benefits?
You can pay rent to your parents, however, they need to account for the same under 'Income from other sources' and will be entitled to pay tax for the same.
On the other hand, you cannot pay rent to your spouse. 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.
Do I need to submit any proof for my HRA claim?
You need to submit 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.
Can I simultaneously avail tax benefits on my home loan and HRA?
The tax benefits for home loan and HRA are two separate entities and have no direct bearing on each other. As long as you are paying rent for an accommodation, you can claim tax benefits on the HRA component of your salary, while also availing tax benefits on your home loan. This could be the case if your own home is rented out or you work from another city etc. However, you need to account for any rental income you receive from the property you own under income from other sources.
- I am paying a house rent for Rs 14,000/- per month and additional Rs. 1,200/- towards maintenance for which receipt is being given to me every month. Will I get House Rent Allowance (HRA) exemption on Rs. 14,000/- or Rs 15,200/-. Please clarify.
HRA Exemption on maintenance Charges Paid Separately?
Query 1 – I am paying a house rent for Rs 14,000/- per month and additional Rs. 1,200/- towards maintenance for which receipt is being given to me every month. Will I get House Rent Allowance (HRA) exemption on Rs. 14,000/- or Rs 15,200/-. Please clarify. [N.K.Panda-niroj_p @ yahoo.com]
Reply by CA Naresh Jakhotia
HRA exemption is available towards rent payment. The question here is what type of payment could be considered as rent. Whether payment towards maintenance, electricity, additional amenities & facilities could be considered for HRA exemption?Given the clear cut wordings of the section 10(13A) & without any precedent as of now stretching the meaning of "Rent", I am of the view that exemption would be admissible only towards Rent payment and not payment done towards electricity, maintenance charges etc. If however, you make the lump-sum payment to the landlord towards rent who in turn makes the payment of maintenance charges or others, the exemption u/s 10(13A) could not be denied.
(Author is a CA in Practice from Nagpur and is Partner in M/s. SSRPN & Co.)
Tax Evasion and avoidance is a main problem in every country. Taxpayer can choose any tax efficient method but that method should not for the purpose to obtain tax benefit. General Anti Avoidance Rules (hereinafter referred to as GAAR) has been introduced by Government to overcome from these problems. GAAR provisions aims at reducing or preventing impermissible tax avoidance.
General Anti Avoidance Rules – Applicability & Brief Provisions
CA Paras Mehra
Tax Evasion and avoidance is a main problem in every country. Taxpayer can choose any tax efficient method but that method should not for the purpose to obtain tax benefit. General Anti Avoidance Rules (hereinafter referred to as GAAR) has been introduced by Government to overcome from these problems. GAAR provisions aims at reducing or preventing "impermissible tax avoidance".
These provisions were made applicable by the Finance Act, 2012 with effect from 1-4-2014 (i.e., assessment year 2014-15). Since a number of representations were received against the GAAR, an expert committee (Shome Committee) was appointed. The Shome Committee submitted its report. Based on the report, certain decisions to make amendments to GAAR were announced by Government on 14-1-2013. Thus, amendments to GAAR were expected in the Finance Act, 2013. And true to expectations, the Finance Act, 2013 has substituted Chapter X-A with a new Chapter X-A with effect from assessment year 2016-17.
GAAR is intended to target tax evaders, especially Indian companies and investors trying to route investments through Mauritius or other tax havens in order to avoid taxes. GAAR is typically a statutory rule that empowers a revenue authority to deny taxpayers the benefit of an arrangement that they have entered into for an impermissible tax-related purpose.
To Read More download the FREE booklet from the link given at the end of the Article. Book contains the following topics:-
- Introduction
- Purpose of GAAR.
- Applicability of GAAR.
- Some Important Facts for Indian GAAR.
- Indian GAAR.
- Section 95: Applicability of GAAR.
- Section 96: Impermissible Avoidance Arrangement.
- Statutory Presumption [Section 96(2)].
- Section 97: Arrangement to Lack Commercial Substance.
- Section 98: Consequences of Impermissible Avoidance Arrangement.
- Section 99: Treatment of Connected Person & Accommodating Party.
- Section 100: Application of Chapter.
- Section 101: Framing Of Guidelines.
- Procedure Regarding Application of GAAR by Income Tax Department.
- Miscellaneous Issues
(Author, is a professional and handles Taxation matters, which happens to be his core competency and also a founder of www.quickcompany.in . Any feedback or query is welcomed and you may reach us at paras@quickcompany.in or at +91 9654622792.)
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General Anti Avoidance Rules - Applicability & Brief Pro... Tax Evasion and avoidance is a main problem in every country. Taxpayer can choose any tax efficient method but that method should not for the purpose ... | |||||||
CA Articles – Inevitable Classes & Unmanageable timings; Professionalism for a toss?
Dear all, quite some number of us have known, been through and have faced the brunt of managing between our Articleship and the respective Classes during our time in CA Finals. Maybe some of us are still facing the brunt of the same in some way or the other….
Students, on paper, are undergoing their Articleship in conformity with the guidelines but are they actually able to do so ?, does the fear of failing in CA Finals due to their inability to attend Classes because of Articleship not haunt them ?, do they not take Dummy Articleship or request their respective Principals, Chartered Accountant under whom they are undergoing their Articleship, to let them come late to the office or to allow them to leave early so that they can attend Classes ?
The issue is that a CA student wants to become a Chartered Accountant as early as possible and for that he/she needs to attend all the required Classes irrespective of their odd timings. Now, a student who is undergoing his/her Articleship training finds it difficult to manage between Articleship and Classes quite some number of times. This leaves the student with two options, either take a Dummy Articleship or request his/her Principal, Chartered Accountant under whom they are undergoing their Articleship, to come late or leave early at times.
Articleship is there so that a CA student can undergo practical training in order to learn Professional practices, communications and ethics and to get some hands-on experience w.r.t. our area of work. However, what actually happens is that quite some number of CA students, due to their inability to manage between Articleship and Classes, either come late or go early thereby disturbing the office decorum or they take Dummy Articleship which results in their being undertrained and lagging behind in terms of Professionalism.
Who is to be blamed ?, a student who wants to become a Chartered Accountant as early as possible or the Chartered Accountant Principal who lets his/her Articles disturb the office decorum on compassionate grounds !
We need to realise that the upcoming generation of Chartered Accountants will learn what we teach them. We can blame nobody, neither the student nor the Chartered Accountant Principal. Student's desire to complete CA as soon as possible is genuine and the Chartered Accountant Principal's allowing the Article to come late or leave before office hours are over is empathy. Hence nobody can be blamed.
No doubt that most of the CA students consider General Management and Communication Skills (GMCS) Classes a mere formality and it's because we have taught them, directly or indirectly, that it's alright to take Dummy Articleship and that it's alright to not obey the office timings while being in the Articleship and that good communication skills are not that important because we are Chartered Accountants and that's the end of the world !
We need to make a sincere effort to churn out top notch Professionals and well taught human beings. Classes which take place during general office hours should be kept under check by our respective Institute and its allied bodies. An Article should be comprehensively trained by the respective Chartered Accountant Principal. Communication must be given it's due importance since it's the need of the hour due to spurt in globalisation.
Various learnings are given during GMCS sessions but the practical and the most important part, the Articleship, is not given its due importance. Most of the learnings in GMCS sessions can actually be implemented and taught during Articleship.
The aforementioned issues are only a part of the lake, however, if taken care of then they can make a huge difference in a positive way to us, to our great institution and to our reputation and respect in terms how community perceives us !
(Author Details- CA Sahil Jolly - Jolly & Co. Chartered Accountants, Contact: +91-9999830077, Email : casahiljolly@gmail.com)
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