House rent exempted

This query is : Resolved

M. R. VAKALIYA (Querist)
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27 February 2010 Person works in x-city and stays with his friend and he brings house rent slips where his family stays in Y-city so in this case HRA is exempted from income Tax.

Expert pls reply.

CA Ashok Kumar Sahu

CA Ashok Kumar Sahu (Expert)
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27 February 2010 in my opinion Yes

Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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28 July 2024 To determine if House Rent Allowance (HRA) is exempt from income tax when a person works in one city but stays with a friend while their family resides in another city, we need to consider several factors. The exemption of HRA depends on the specific conditions laid out by the Income Tax Act of India.

### HRA Exemption Conditions

**1. **HRA Receipt**:
- **Actual HRA Received**: The amount of HRA received by the employee must be considered.

**2. **Rent Paid**:
- The rent paid should be for a residential property.

**3. **Employee’s Place of Residence**:
- For claiming HRA exemption, the rent should be paid for accommodation occupied by the employee or their family.

**4. **Place of Employment**:
- The HRA exemption rules stipulate that the rent should be paid in the city where the employee is employed.

### Detailed Analysis

#### **Scenario Analysis:**

1. **Employee Stays with Friend in X-City**:
- If the employee stays with a friend in X-city, no rent is being paid for accommodation in X-city. Therefore, no rent expense is being incurred in the city where the employee works.

2. **Family Stays in Y-City**:
- If the family stays in Y-city and rent is being paid there, this could potentially qualify for HRA exemption, provided the employee meets the conditions.

### Conditions for HRA Exemption:

- **Rent Payment**: HRA can be exempted if rent is being paid in the city where the employee's family stays, and the employee has valid rent receipts.

- **Employment City**: If the employee does not pay rent in the city of employment (X-city), then the HRA exemption claim may be questionable, as the rent should ideally be paid for accommodation in the city of employment.

- **HRA Exemption Calculation**:
- HRA exemption is calculated based on the least of the following three amounts:
1. Actual HRA received
2. Rent paid minus 10% of salary (Basic + DA)
3. 50% (or 40% for non-metro) of salary (Basic + DA)

### Practical Considerations:

1. **Documentation**: Ensure that you have valid documentation, such as rent receipts and lease agreements, for the rent paid in Y-city.

2. **Proof of Employment City**: Even if the rent is paid in Y-city, if the employee does not pay rent in X-city (where they work), it could impact the HRA exemption claim.

### Conclusion

In summary, for HRA to be exempt from income tax:

- The rent should generally be paid in the city where the employee is employed.
- If the employee is staying with a friend and not paying rent in the city of employment, claiming HRA exemption could be problematic.
- However, if the employee pays rent for their family's residence in another city, and if this is in accordance with the rules, it may still be possible to claim HRA exemption, but it is crucial to meet all conditions and provide necessary documentation.

For specific cases and personalized advice, it is always recommended to consult a tax professional or financial advisor.

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