House Rent Allowance Exemption Rules

House Rent Allowance Exemption Rules: All You Need To Know

House Rent Allowance

House Rent Allowance Exemption Rules: All You Need To Know

What is House Rent Allowance (HRA)?

House Rent Allowance is the amount paid by the employer to the employee to meet the the expenses incurred in getting the residential accommodation on rental basis. This is the most important allowance among all kinds of allowances paid to the employees across different professions.

Tax Provision of House Rent Allowance:

Out of the total House Rent Allowance received a tax exemption is available under section 10 (13A) of Income Tax Act 1961 to an Individual. An amount equal to minimum of the following three items is exempted from tax under section 10 (13A) read with rule 2A and the balance, if any, will be added in the salary of the employee for tax purpose. The three items are:

  1. 50% of salaries in case of Mumbai, Kolkata, Chennai and Delhi and 40% of salary in case of all other cities.
  2. Actual House Rent Allowance received
  3. Actual Rent paid by employee – 10% of salaries

which ever is least is exempted from tax.

Meaning of Salary for HRA:

Salary includes: Basic Salary + DA (enters)/DP + Commission as fix percentage of turnover achieved

Cases when HRA is Fully Taxable:

  1. If employee is living in his own house.
  2. If employee is living in a house for which he is not paying any rent.
  3. if rent paid does not exceed 10% of salary.

Cases when HRA is fully exempted:

In case HRA is received by judges of High Court under High Court Judge (conditions of service) Act 1954 and Supreme Court Judges under Supreme Court Judges (conditions of services) Act 1958 shall be fully exempted.

Conditions for Claiming HRA exemptions:

HRA exemptions are only available on submission of rent receipts or the rent agreement with the owner of the house. However if the house rent allowance is up to 3000 per month or 36000  a year, the employees are exempted from the production of rent receipts to  employers.

Where rent paid during the year exceeds Rs.100000 a year, employees are required to submit Form No. 12BB to the employer, incorporating the name, address and PAN of the landlord.

Example for HRA Exemption:

Mr. X is receiving a basic salary of Rs.20000 p.m. and dearness allowance of Rs.10000 p.m. (50% of which forms part of retirement benefits). He is also getting  Rs.8000 p.m. as HRA. He actually pay Rs.5000 p.m. as rent for the house in Mumbai.

Actual House Rent Allowance Received (8000×12)          96000

Less: Least of the folllowing (Sec. 10(13A)

  • 50% of Salary                               150000

(Salary 240000+60000=300000)

  • Actual HRA Received                   96000
  • Actual Rent Paid- 10% of Salary 30000

(60000-30000)

w.e. is least is exempt                                                       30000

Taxable HRA                                                                     66000

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