Can an Employee Claim HRA Exemption on a Rented Hotel Room?
HRA is an allowance that can be claimed by a salaried individual who lives in a rented house. If you don’t live in a rented accommodation, the HRA allowance received from an employer is fully taxable.
Basic conditions to be fulfilled to claim HRA
- Rent should be paid for the house taken on lease
- The house should not be in your name
- The employee must commute from the rented house to the office
- There must exist a rental agreement and rent receipts of payment of rent
Because of these above-stated conditions, HRA exemption on a rented hotel room cannot be claimed. The relationship between the hotel and you would not be considered as a lessor and a lessee. This relation can be more appropriately termed as that of a service provider and a service recipient. Hence HRA on a hotel room cannot be claimed.
However, when you relocate to a different city for the purpose of employment, any allowance or reimbursement that is received by you from the employer for a stay in a hotel is taxable, only after providing a certain deduction. For the initial 15 days, any allowance received from the employer shall be reduced with the expenditure incurred for accommodation, and the balance amount will be taxed.
It should be noted that any allowance or reimbursement after 15 days would be entirely taxable as salary.
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FAQs (Frequently Asked Questions)
What is the full form of HRA?
HRA means House rent allowance in income tax. It means the component of salary received towards the rent payment and is allowed as deduction from taxable salary subject to maximum deduction allowed as per the rules.
What is an HRA allowance and how to calculate HRA?
HRA means House rent allowance in income tax. It means the component of salary received towards the rent payment and is allowed as deduction from taxable salary under section 10-13A. HRA exemption is allowed least of the below
Actual HRA received by the employee
40 % of salary for non metro city or 50 % of salary if the rented property is in Metro city like mumbai, delhi, bengaluru , chennai, etc)
Actual rent paid less than 10% of salary.
For above calculation , salary would include basic, dearness allowance and fixed percentage of commission.
Who can claim HRA exemption?
Salaried employees who receive house rent allowance as a part of salary and make payment towards rent can claim HRA exemption to reduce their taxable salary wholly or partially.