HOUSE RENT ALLOWANCES

HOUSE RENT ALLOWANCES

HRA (House Rent Allowance) is a benefit given by the employer to the employee for his house rent expenses. Your gross salary includes HRA. Although the allowance leads to an increase in gross salary, it is not fully taxable under the Income Tax Act, 1961. As per section 10(13A) of the Income Tax Act,1961, read with Rule 2A of the Income Tax Rules, the least of the following will be exempted, and will not form part of the taxable income. 

 Compute HRA: 

House Rent Allowances                 xxx 

LESS: Exemption                             xxx 

Taxable HRA                                    xxx 

Least of the following:

 

1. HRA received 

2. Rent paid -10% of salary 

3. 40% of salary (other Cities) / 50% of salary (Metropolitan cities ) 

NOTE: Salary = Basic + DA (Forming Part) + % on Turnover 

Metropolitan cities 

1. Chennai
2. Mumbai
3. Calcutta
4. Delhi

Example: 

Let’s say, Mr X, residing in Chennai has the following receipts from his employer:

Basic Salary (pa) - Rs.8,50,000

DA (Dearness allowances) - Rs.20,000

HRA received - Rs.4,20,000

Actual rent paid - Rs.5,30,000

Therefore, the exemption shall be the least of the following. 

1. Actual HRA received – 4,20,000 

2. 50% of salary – 4,35,000 

3. Actual rent paid (–) 10% of salary – 4,43,000. (5,30,000 – 87,000) 

Exemption = Rs.4,20,000