What is a House Rent Allowance (HRA)?
House rent allowance meaning (HRA) is the allowance you receive from your employer or organization towards the rent of your house. It forms part of your salary.
HRA meaning in salary, city of residence, company’s salary structure, etc. Generally is a fixed percentage of your basic salary. Also, you can claim a tax exemption on your HRA under Rule 2A of Income Tax, 1961.
Moreover, the calculation of HRA is influenced by multiple factors which are as-
- Salary
- Rent paid
- HRA received by the employee
- City of residence
HRA for self-employed individuals
Self-employed people can also claim deductions and HR exemption in new tax regime towards House Rent Allowance. Overall, they can claim a deduction under Section 80GG of Income tax.
HRA for salaried employees
Salaried employees can claim exemptions under Section 10 (13A), rule 2A of the Income Tax Act. Moreover, the HRA full form in company House rent allowance is part of an individual’s salary, so it should be claimed using a defined procedure.
HRA Calculation
The deduction for HRA’s calculation available is at least of the following amounts.
- Actual HRA received from the employer
- 50% of (Basic salary+ Dearness Allowance) for those living in metro cities (Delhi, Gurgaon, Kolkata, Mumbai or Chennai)
- 40% of (Basic salary+ Dearness Allowance) for those living in non-metro cities.
- Actual rent paid (-) 10% of (Basic salary+ Dearness Allowance)
How is HRA taxed?
If the payment of rental expenses is more than one lakh rupees it is mandatory to provide the PAN details of the landlord while filing the income tax returns.
Further, let us understand the HRA table component by taking a simple illustration of a salaried employee with calculate HRA formula.
Mr. A employed in Delhi has taken accommodation on rent for which he pays 30000 Rs per month as rental. He receives a basic salary of 50000-/ and a dearness allowance of 8000-/ monthly which is also a part of his salary. He receives an HRA of 1,20,000 throughout the year.
3. Actual rent of 3,60,000- 10% of(50000+8000)*12 2,90,400
4. HRA deduction= Least of (1,2,3) 1,00,000
Eligibility criteria to claim a tax deduction on HRA
Section of House rent allowance is eligible for HRA deduction under Section 10(13A) of the Income Tax Act if an individual meets the following criteria.
- The person calculate HRA calculation is a salaried or a self-employed individual
- The person must be living in a rental property or paying some house rent receipt format. Calculate HRA exemption cannot be claimed by those individuals who are living in their own house.
- You should be able to produce a proof of rent paid such as a valid house receipt.
- Overall, this means you cannot claim HRA deduction until or unless you are paying rent even if the company is providing you house rent allowance taxable.
HRA Taxation Rule in India
HRA exemption rule states that HRA deduction is allowed for only those individuals who are either salaried or self-employed and living in a rental accommodation. Furthermore, it means even if you are getting from your employer and you are not living in a rented property your entire amount for house rent allowance is taxable under Income Tax Act.
Moreover, taking the above example of Mr. A if he was not paying rent his entire amount of 1,20,000 would be taxable under his applicable income tax slab.
Also, for self-employed individuals who didn’t receive any HRA rules amount, the Housing Allowance rule allows the benefit of claiming HRA exemption under 80GG.
Therefore, while calculating HRA tax exemption, it is important to understand whether you claim HRA deduction under Section 10(13A) or Section 80GG.
Tax Benefits of HRA
HRA deduction under Section 10(13A) has the following benefits:
- The biggest advantage that offers is reduction of total taxable income.
- You can also claim deduction in HRA full form in salary even if you are living in your parents home by showing the valid proof of rent receipt.
- Moreover, you can also claim HRA tax benefit even while paying EMI for home loan as long as your house is not located in the city of your employment. Also, if the residence is in the same city you will need to produce a valid explanation as to why you cannot live there.
How to claim deduction even if you didn’t receive HRA?
Self-employed and salaried employees cannot claim deduction under Section 10(13A). However, they can still avail the benefit under Section 80GG of the Income tax.
Further, under Section 80GG, an individual can claim deduction in least of the following
- 5000 per month that is 60000 per year
- 25% of Gross total income
- Actual rent paid- 10% of Gross Total Income
Documents Required for House Rent Allowance Exemption
HRA exemption is a provision in the Income Tax Act that allows employees to deduct tax from their total salary.
Further, in order to claim this exemption certain documents are necessary.
Moreover Documents required to get House Rent Allowance Deduction are:
- Rent receipts (mandatory)
- Registered rental agreement
- Proof of rent payment through bank transfer/UPI
- Salary slips showing HRA
- Form 12BB to be submitted at the time of investment proof submission
- Landlord PAN if annual rent > ₹1 lakh
- Self-declaration from landlord if PAN is not available, as per Circular No. 8/2013
Overall, along with these documents you might also be asked to submit some additional documents based on your job profile, income and the duration for which you have rented the apartment.
Conclusion
The HRA rebate is a tax deduction available to employees and self employed individuals in India. Further, the employee will deduct the amount of from their salary and pay it directly to the employee upon his entitlement.
Calculating HRA Exemption is important to determine how much of your income is exempted from income tax. Therefore, you can follow a series of steps to calculate that. Various software can be used to calculate HRA.
FAQs
What is HRA in Salary?
HRA is a compensation provided by employers to their employees to help them meet the expenses for rented accommodation. Moreover It also entitles the employee for tax benefits under Section 10(13A).
What is HRA full form in Salary ?
It stands for House Rent Allowance; it is that part of an employee’s CTC, which is paid to cover the accommodation costs.
What is the HRA for employees?
Basically, for employees is the allowance paid by employers to support house rent expenses. Further, it also allows eligible employees to claim tax exemption if they live in rented accommodation.
What is the HRA rate?
HRA rate normally ranges from 40% to 50% of the basic salary, depending on whether the employee is residing in a non-metro or metro city. The exact rate is determined by the company itself, depending on its salary structure.
Why is HRA 50% of basic salary?
As the rents are higher in metro locations, for employees living in metro cities, is 50% of basic salary. Additionally for non-metro cities, the standard rate is 40% of basic salary.
How can i claim a HRA exemption?
You can claim HRA exemption by providing the following documents to your employer: rent receipts, rental agreement, Form 12BB, and proof of rent payment. Overall the amount to be calculated as exemption is the minimum of the following: actual HRA received, excess of rent paid over 10% of salary, or 50%/40% of salary based on your city.
