Understand House Rent Allowances (HRA)

House Rent Allowances is commonly known as HRA, it’s a kind of gift of TAX saving for salaried person under section 10(13A). Here HRA amount is exempted from TAX.

Who is Eligible for HRA?

An Individual who satisfies all 3 conditions.

• HRA must be included in your salary component
• You are staying in the rental house
• Your rent is more than 10% of your BASIC salary

How to Calculate HRA?

The minimum of following 3 will be considered as HRA deduction.

• HRA received from your employer in respect of the period during which rental accommodation is occupied.
• Rent paid minus 10 per cent of salary
• An amount equal to 40% of salary. 50% in case of Metro City (Mumbai, Kolkata, Delhi or Chennai)

Example:

Let’s assume you pay Rs.5000 as rental in Mumbai. You get Rs.3000 as HRA and Rs.10,000 as your basic salary.

• HRA received by employer: Rs.3000
• Rent paid minus 10 per cent of salary: 5000 - 1000 (10% of 10,000) = Rs.4000
• 50% of salary: Rs.5000

So the minimum of the above three values which Rs.3000 is the permissible for HRA deduction per month i.e. Rs.36,000 annually

• If you are living in your own house than you cannot claim HRA even if you get HRA allowance from your employer.
• If your house is in your parents or spouse name than you can claim HRA by showing that you are living on rent.
• If you have taken a home loan to buy a house and you are living in rental house than you can claim HRA & home loan tax benefits both.
• If you are not employee (self employee/ business owner) & living in rental house, you can still claim HRA under section 80GG