House Rent Allowance (HRA) is generally considered as a part of the salary component and is generally added in the salary structure to help the individual to save taxes. House rent allowance deduction is given under section 10(13A) of the Income Tax Act in accordance with Rule 2A of the Income Tax Rules.
If you stay in a rented house and get an HRA from your employer then you can claim partial exemption of House Rent Allowance on meeting the prescribed conditions:
1. What are the conditions to claim the House Rent Allowance(HRA) Deduction?
The employee must fulfill the following conditions to claim House Rent Allowance deduction:
- The allowance must be specifically granted to the employee by his employer to meet expenditure actually incurred on payment of rent in respect of residential house occupied by the assessee.
- The employee should not be the owner of the residential house occupied by him.
- The employee must have actually incurred expenditure on payment of rent.
- It is necessary to have a relation of the employee and the employer.
2. Amount of Exemption in respect of House Rent Allowance
Exemption in respect of House Rent Allowance is regulated by rule 2A. The least of the following is exempt from tax:
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Major Cities Mumbai, Delhi, Calcutta, Chennai |
Other Cities |
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The place where the residential house is situated is divided into:
- Major Cities, i.e., Mumbai, Delhi, Calcutta, Chennai
- Other Cities
3. How to calculate House Rent Allowance(HRA)?
For computing HRA, salary means basic salary and includes dearness allowance, if the terms of employment so provide. Salary shall not include other allowances & perquisites.
Example: Mr. A, who resides in Chennai, gets Rs. 6, 00,000 as a basic salary. He receives Rs. 1, 70,000 as house rent allowance (HRA). Rent paid by him is Rs. 1, 80,000. Find out the amount of exemption of house rent allowance.
Solution: The exemption will be worked out as follows:
- House rent allowance received for the year Rs. 1,70,000
- 50% of salary Rs. 3,00,000
- Rent paid minus 10% of salary Rs. 1,20,000
Exemption admissible (least of the above) Rs. 1,20,000
HRA Calculator
You can also compute your HRA via this House Rent Allowance Calculator available on the official website of the Income Tax Department here https://www.incometaxindia.gov.in/Pages/tools/house-rent-allowance-calculator.aspx
FAQ's on House Rent Allowance
1.Will the commission based on sale be included in salary?
Yes, commission based on sales is paid in addition to fixed salary as part of the contract of employment, such commission will form part of salary. Gestetner Duplicators (P.) Ltd. v. CIT (1979).
Will the commission paid with reference to profit be included in salary?
Yes, commission paid with reference to profit, it would partake the character of salary if it is a mode of remuneration or recompense for the services rendered by the employee. Raja Ram Kumar Bhargava v. CIT (1963).
2. Will the bonus be included in salary for calculation of HRA?
No, bonus will not include in salary for calculation of house rent allowance. CIT v. B. Ghosal (1980)
RENT PAID TO SPOUSE OR CLOSE RELATIVE
3. I am living in wife's house can I claim HRA?
Yes, you can claim HRA exemption. The only condition is that the rent should be paid to the wife on a monthly basis. There is no legal requirement but in such case rent should be paid through bank transfer. You need to prove that it was paid. The exemption is available even if you live in your father's or mother's house.
As decided in the case of Bajrang Prasad Ramdharani vs ACIT for HRA exemption if the rent is paid to spouse/parent is valid if all the below conditions are fulfilled:
- The residential accommodation occupied by the assessee is not owned by him
- The assessee has actually incurred expenditure on payment of rent in respect of the residential accommodation occupied by him.
I live with my mother instead of my husband and give some money to mother for her day to day expense rather than transfer to her bank account. Can I claim house rent allowance?
No, you can't claim house rent allowance exemption because you give some money to your mother for day to day expense rather than rent. For claiming house rent allowance transfer of money through bank or cash must be mandatory and rent should be paid on monthly basis. You need to prove that it was paid.
Evidence for Claiming HRA
4. Have to submit any document by the employee to employer for claiming HRA?
As per rule 26C, employee shall furnish name, address and PAN of the landlord(s) where the aggregate rent paid during the previous year exceeds Rs. 1 lakh. The particulars shall be furnished in Form No. 12BB.
Is it mandatory for landlord to file their Income tax return?
No, as per Income Tax Act a person is required to submit his return of income, if income exceeds exemption limit. Exemption limit for the assessment year 2020-21 & 2021-22 is Rs. 2, 50,000. It is advisable for the landlord to declare the rented received as income in the Income Tax return filed by him to avoid litigation.
HRA deduction and Housing Loan Benefit
5. Can I claim house rent allowance exemption and housing loan exemption simultaneously? If yes, then how?
House rent allowance covered under section 10(13A) and housing loan exemption covered under section 24(1). These are two different sections. Anyone can claim both benefits simultaneously.
Suppose, Mr. A lives in Delhi but due to employment went to Mumbai. He gets house rent allowance from his employer and paid the rent to the landlord. He has his own house in Delhi and his family live in the house. He has taken a home loan on his own house.
In this situation, Mr. A can claim both the exemption i.e. house rent allowance and house loan exemption.
6. Can I claim house rent allowance and housing loan exemption simultaneously in case if the own property and rented property in the same city?
Yes, you can claim both the exemption simultaneously if you can prove that the own property is far away from the workplace and therefore stays in the rented property.
New Tax Regime
7. Can I claim house rent allowance under new tax regime which is applicable from the assessment year 2021-22?
No, under new tax regime you are not allowed to claim house rent allowance.
8. Is mandatory to adopt new tax regime?
No, it's not mandatory to adopt new tax regime. It depends on individual.
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