Introduction:

Employee benefits are paid within the salary as additional benefits for various needs. One such allowance is the House Rent Allowance (HRA), which aims to meet the rental costs of accommodation. This benefit is especially useful for employees who have to live away from their home. The following article aims to provide a comprehensive understanding of house rent, including tax rules and calculation methods..

House Rent Allowance (HRA):

HRA or House Rent Allowance is a benefit paid by employers to employees who live in rented accommodation near their workplace. Although this deduction is fully taxable, certain tax benefits are allowed under section 10(13A) of the Income Tax Act. Both private and public organizations extend HRA to their employees. Factors affecting HRA deduction are:

• The overall HRA amount
• Rent Amount 
• Salary
• Work location

Eligibility to claim HRA:

While HRA is not tax-exempt, you can qualify for a tax deduction under Section 10(13A). The eligibility criteria as follows.

• The primary requirement is that you must be a salaried employee to be eligible for a tax deduction on HRA. Self-employed individuals are not eligible to any tax deduction for HRA.

• To qualify for a tax deduction, employees must ensure that their salary includes House Rent Allowance (HRA).

• Employees are required to provide proof of paid rent through submission of receipts. If annual rent exceeds Rs. 1,00,000, it is necessary to provide the landlord’s PAN details.

• HRA applies only to persons paying rent. Therefore, employees living in their own property cannot benefit from HRA or claim tax benefit. However, employees residing with their parents can claim both HRA and tax benefit.

HRA Deduction:

The calculation of the tax deduction depends on various factors, including your salary, HRA amount, annual rent, and the city of residence. The minimum deduction or tax benefit for HRA is:

• Amount of HRA

• Employees living in non-metro cities receive 40% of the DA plus basic salary, while those in metro cities are entitled to 50%.

• A deduction of 10% of the basic pay is subtracted from the actual rent for accommodation

HRA Calculation:

An individual can claim the lowest amount among the following as an HRA exemption:

• Actual HRA Received by an employee
• In metro cities like Delhi, Mumbai, Chennai, and Kolkata, individuals are eligible for an HRA exemption of 50% of their basic salary plus DA (50%of( Basic salary + DA))
• Conversely, for those residing in non-metro areas, the exemption is set at 40% of the basic salary plus DA(40%of( Basic salary + DA))
• Actual Rent paid – 10% of the basic pay

Factors to consider when applying for HRA deduction : 

The essential factors you should remember  in mind when applying for an HRA deduction include:

• The entire HRA amount may not be eligible for a tax deduction.
• If you are residing with your parents, you can claim a tax deduction for HRA; however, it is not applicable when living with a spouse.
• In the case of an NRI landlord, individuals are required to deduct 30% tax from the rent amount.
• The HRA should not exceed 50% of your basic salary.
• Tax deductions will be calculated differently for cities designated as metros, including Kolkata, Mumbai, Delhi, and Chennai, as opposed to non-metro cities.

Tax Benefits of HRA:

The advantages of tax deductions under Section 10(13A) and 80GG are outlined as follows:

• The HRA deduction reduces the taxable income amount.
• Employees can avail themselves of a tax deduction on HRA even while paying an EMI on a home loan, provided that the residence is not in the same city as the workplace.
• Individuals are eligible to claim an HRA deduction even if they reside with their parents.

Conclusion:

We trust that this article has provided you with a thorough understanding of house rent allowance and pertinent details. Additionally, it offers a calculation of HRA deduction for your reference. Furthermore, HRA deduction opens up opportunities for various additional benefits.