Introduction

An allowance that is provided by an employer to the employee to cover the expenses of the accommodation rent which the employee may incur for his housing purpose is known as House Rent Allowance (HRA). The House Rent Allowance which is waged by the employer to the employee is taxable under the head of “Income from Salaries” to the degree it is not exempted under section 10(13A).It is said to be Tax Saving Allowance under salaried employees.

As per the Income Tax Act of India, Section 10 (13A) and Rule 2A of the Income tax rules, the employee/assessed is exempted from paying income tax return online that’s why House Rent Allowance has picked up such a great amount of significance in the late years.

Formula = HRA received – (less) Exempt under section 10(13A) = Taxable Amount.

Example

If the employee’s basic salary is Rs 2,00,000

House Rent Allowances received by him = Rs 40,000, Rent paid by him = Rs 60,000

Subsequently, the exemption on HRA obtained by the employee = Rs 40000.

The balance amount after claiming exemption of HRA the balance would be added to the total of the salary and taxed as per the income slab rates.

HRA received is exempted under section 10(13A)

  • Actual HRA is provided to the employee in regards to the period of time.
  • The surplus of Rent remunerated for the accommodation that is occupied by the employee over 10% of the salary for the Relevant Period of time.
  • 50% of the salary when the residential accommodation is located in Delhi, Calcutta, Mumbai, or Chennai and 40% of the Salary when the residential accommodation is located at another domicile for the relevant period of time.

Notes

  • Here, relevant period stands for the time period throughout which the accommodation mentioned was occupied by the employee/assessee during the said financial year.
  • Dearness Allowance (DA) is included in the Salary of the employee for the period of the employment so delivered but except all additional perquisites and allowances.
  • The dearness allowance is included to the magnitude. It is the fragment of the salary in accordance with the terms of employment of the employee. All other perquisites and allowances are not included.
  • If the employee has not paying any rent or resides in his own house, then no exemption regarding house rent allowance is provided.
  • When the rent paid to the landlord by the employee surpasses Rs1 Lakh in a financial year, then the PAN Card Number of the Landlord of said employee would be mandatory to be furnished (according to the provisions of CBDT Circular).

The exemption on House Rent Allowance is centered on: 

  1. Salary of the employee
  2. His place of residence
  3. Rent paid to the landlord
  4. HRA received by the employee

Considering the above factors, there is a probability of variation in above-mentioned elements in the course of the previous financial year, exemption on house rent allowances should not be calculated always on an annual basis. HRA should be calculated same till there is any change in the above factors. During the time there is no alteration in any of the above elements; it can be calculated altogether for that financial period.

How to claim Section 80GG deduction?

The lowest of these will be considered as the deduction under this section –

  • Rs 5,000 per month
  • 25% of adjusted total income*
  • Actual Rent less 10% of adjusted total Income*
    Adjusted Total Income* means Total Income Less long term capital gain, short term capital gain under section 111A and Income under section 115A or 115D and deductions 80C to 80U (except deduction under section 80GG)

For any help on ITR Filing feel free to consult the tax experts at LegalRaasta. You can file ITR yourself via our ITR software or get CA’s help on filing income tax return. You can also use the option of Business ReturnBulk Return or Revised Return Filing.