House Rent Allowance
Income tax department offers HRA tax exemption for those individual tax payer who stays in a rented house. Section 10(13A) of the income tax act allows the exemption of HRA. Employee can claim for HRA exemption if he or she lives in a rented house. To be eligible for claim of HRA deduction, an employee must be paying for the rent to his landlord and maintain the receipts which state that he has been paying for his rental expenditure. If an employee stays in his own house there is no tax deduction on HRA.
Following points to be considered for Calculation of HRA exemption.
1. Amount equal to 50 percent of Salary where residential house is situated in Mumbai, Delhi, Kolkatta or Chennai or Amount equal to 40 percent of Salary for other places.
2. House Rent Allowance received by the Employee
3. Excess of Rent paid over 10% of Salary.
Salary includes Basic Salary + Dearness Allowance + Commission on fixed percentage of turnover achieved by an Employee.
Minimum of point no. 1, 2 & 3 is exempted.
For Example,
Basic Salary (Rs 5000/- per month —— Rs. 60, 000/- yearly),
Dearness Allowance (Rs. 1000/- per month —- Rs. 12, 000/- yearly).
Actual Rent Paid (Rs 2000/- per month —— Rs 24000/- yearly),
HRA received by Employee (Rs. 2000/- per month —- Rs. 24, 000/- yearly)
City: Mumbai
1. 50% of Salary (Basic + DA) = Rs. 36,000/-
2. Rent Received = Rs. 24,000/-
3. Rent paid in excess of 10% of Salary (Basic + DA) = Rs. 16, 800/-,
Hence, Rs. 16800/- would be exempt and the rest Rs 7,200/- would be included in gross salary for tax calculation.
Documents needed to claim HRA includes rent receipts, rental agreement, PAN details of the landlord.