Introduction:
HRA is given to meet the cost of a
rented house taken by the employee for his stay. This is a part of the salary.
HRA is given by the employer due to generally accepted Business practice.
Taxability &
Exemption:
HRA is an allowance and is subject to
income tax. HRA received from the employer is taxable under head “Income from
Salaries”. However Income Tax Act, 1961 allows for exemption in respect of
the HRA paid to employees. The exemption on HRA is covered under Section
10(13A) of the Income Tax Act, 1961 and Rule 2A of the Income Tax Rules.
It is to be noted that the entire HRA is not deductible.
Conditions to claim
Exemption:
·
An
employee can claim exemption under the Income Tax Act if he stays in
a rented house and is in receipt of HRA from his employer.
·
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 exempt u/s 10(13A).
What are the dependent
factors in calculating HRA for the salaried individual?
Exemption of HRA is based on following
factors
·
HRA
Received;
·
Rent
Paid;
·
Salary;
&
·
Place
of Residence (Metro Vs. 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.
Quantum of Exemption:
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 (HRA) received from your employer
·
Actual
house rent paid by you minus 10% of your salary
·
50%
of your salary if you live in a metro (i.e. Mumbai, Delhi,
Chennai & Kolkata) or 40% of your salary if you live in a
non-metro
Least of above will be
exempt.
Note: The exemption 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).
Note: 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.
Example:
Now let’s understand the entire concept
with the help of Example:
Mr. A (working at Hyderabad) has
received following amount during the previous year 2013-14.
(1) Basic Salary – Rs.
(10,000*12) – Rs. 1,20,000/-
(2) Dearness Allowance (D.A)
– Rs. (2,000*12) – Rs. 24,000/-
(3) House Rent Allowance
(H.R.A.) – Rs. (5,000*12) – Rs. 60,000/-
(4) Actual Rent Paid –
Rs.(4,000*12) – Rs. 48,000/-
The minimum of the following amount
shall be exempt
⇒ Actual HRA received (5,000*12) – Rs.
60,000/-
⇒ Rent
Paid in excess of 10% of salary ( 48,000-14,400) – Rs. 33,600
⇒ 40% of Salary –
Rs. 57,600/-
Therefore, Rs. 33,600 shall
be exempt and the balance Rs. 26,400 shall be
included in grosssalary.
FAQ:-
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.
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.
No comments:
Post a Comment