House Rent Allowance (HRA)
Reviewed by Aug 27, 2020| Updated on
There are many expenditures for an employee and one of the major expenses for an employee is house rent. To incur this cost, companies usually provide allowance to employees as a part of the salary.
What is HRA?
House Rent Allowance, or commonly known as HRA, is an amount paid by the employer to employees as a part of the salary. HRA helps provide employees with tax benefits towards the payment for accommodation every year. The HRA to be paid is decided based on different criteria, such as the salary and the city of residence.
HRA is regulated by the provisions of Section 10(13A) of the Income Tax Act, 1961. The HRA serves to be quite beneficial to salaried employees in India.
A major benefit of the HRA is that it serves as a medium to reduce the taxable income. HRA deduction leads to a reduction in the tax that taxpayers have to pay.
Who is eligible for HRA?
As per the Income Tax Act, 1961, only salaried employees can claim HRA, and self-employed individuals can claim their rent payment under Section 80GG. HRA is allowed as an exemption only if the employee is living in rented accommodations. However, if the employee lives in his or her own house and does not pay any rent, the taxpayer cannot claim HRA to save on taxes.
How much HRA can be claimed?
The deduction available under Section 10(13A) is the least of the following amounts: Actual HRA received 50% of [basic salary + DA] for those living in metro cities (40% for non-metros); or Actual rent paid less 10% of basic salary + DA
Other rules applicable for HRA
- HRA cannot exceed more than 50% of employee basic salary.
- A salaried employee cannot claim for the full rental amount. The exemption will be lower of three as mentioned above (a to c)
- An employee can also avail tax benefits of HRA along with a home loan.
- If the annual rent exceeds Rs.1,00,000, then submission of the landlords PAN card is mandatory. In case the landlord does not have a PAN card, he/she can provide a self-declaration.