What is HRA
House Rent Allowance is the portion of the salary that the employer pays to the employee. It refers to the part of the salary of an employee who is in a job or service. HRA is usually dependent on the type of employment. It is usually 20% of the basic salary in the government sector. The employer usually provides HRA so that the employee can pay his rent.
It is not available to employees if
1. They live in a house that the company provides.
2. Who can use the company’s house-lease facilities
HRA is a rental assistance program that provides support for employees. Therefore, it can be exempt from income tax up to a specific level. A person who lives in their own home does not receive any income tax rebate for HRA.
Calculation of the HRA Rebate
These factors govern the income tax rebate for HRA:
1. Basic salary of an employee
2. Employees receive HRA.
3. His current residence (metro/nonmetro).
4. Rent amount paid
Example: (A). Manish lives in Mumbai on rent and works in a consulting firm. The rent amount is 20000 per month. These are his details about his annual salary.
Basic Salary: 480000
HRA Received: 240000
Medical Allowance: `15000.
Additional allowances: 150000
Manish resides in one of the four major metro cities (Mumbai, Delhi , Chennai, and Kolkata)
1. 50 % of the Annual Basic Salary — 240000
2. Rent amount – Actual amount paid – 10% of the Basic Salary
[20000 x12 = 48000 (10% of 480000).]= 192000
3. Actual HRA received — 240000
Because Manish receives 240000 in HRA, 192000 will be exempt from tax calculation. 48000 (240000-192000) is added to taxable income.
Example: (B). If Manish lives in a non-metropolitan city like Jaipur, the first point calculation will be 40 % of the Annual Basic Salary 192000. This condition will result in the exemption.
Example: (C). If Manish decides that he will prepare a rental agreement for a rent amount of 24000/month, the calculation will be:
1. 50 % of the Annual Basic Salary— 240000
2. Rent amount paid – Actual amount
3. Actual HRA received —– at 240000
HRA exemptions will be granted for the minimum three points above, up to 2,40,000
This forged receipt will exempt Manish from any income tax on the HRA amount. But this will impact the landlords’ earnings. This is why the landlord should not agree to this proposition, as the landlord will have to pay additional income tax .
The Central Board of Direct Taxes has taken steps to stop forgery.
All salaried workers who are eligible for HRA and rent at least 1 lakh per annum must submit a PAN card to their landlords. This was started in the Financial Year 2013-14
If the landlord does not have a PAN card, then an employee must submit an affidavit stating that his landlord does not have a PAN card. The employee, therefore, must also provide the address and name of the landlord.
This rule allows the income tax department to determine whether landlords are subject to income tax on rent receivables.
If you have a rental amount exceeding 1lakh per annum, always submit your landlord’s PAN card to your employer.
How to Claim HRA
1. HRA is available to those who live in cities where they do not own a house. It is important to consider the city where you live (metro or nonmetro).
2. HRA exemption is not available if you pay rent to your spouse.
3. HRA exemption is available if you live with your parents and pay rent to them. Your parents must include the rent you paid in their income and pay according to that income bracket.
People who don’t get HRA
Business people and self-employed professionals generally get benefits under section 80GG of the income tax. Although, they don’t receive HRA but get certain benefits. They may be exempt up to 2000 per calendar month.
Mr Gupta, a Gujarati businessman, has an annual income of 250000/. He lives on rent and pays rent at 5000/month. Ramlal lives in a metropolitan area, which means that 10 % of his Annual Income is Rs 25000.
Rent amount paid in actuals 5000 x12 = 60000
He is eligible for an exemption of 2000/month to be exempted from 24000/year.
