House rent Allowance or HRA Exemption U/S 10 (13A)

House rent allowance granted by an employer to his employee is tax exempted to the extent provided under section 10 (13A) of income tax act 1961. Employees in India, receive house rent allowance from their employer every month as a part of their terms and conditions of employment.

As per Income Tax Act provision, HRA is partly exempted if certain terms and conditions met by the employee. Today In this article, we will discuss how to get HRA exemption and how to calculate taxable HRA as per Income Tax Act, 1961.Income tax provisions for house rent allowance or HRA

Employer use to provide HRA benefit to employees to meet the cost of a rented house at employer’s work location.

An employee can claim exemption on his house rent allowance only if he stays in a rented accommodation during the financial year. If employee stays in his own home or in a house for which he does not pay any rent then HRA exemption under this section is not available. This means the entire HRA received from the employer will be taxable in the hand of employee. So to get entitled for the exemption, employee needs to pay rent for the house.

Exemption for HRA is divided based on the city where employee live. Income tax act specifies two types of cities for the calculation of exemption;

  1. Metro Cities i.e. Mumbai, Calcutta, Chennai and Delhi
  2. Non Metro Cities

House rent allowance exemption calculation in case of metro cities

If you have taken a rented accommodation in a metro city i.e. Mumbai, Kolkata, Chennai and Delhi then your house rent allowance will be exempted to the extent of following;

  1. Actual HRA received from the employer
  2. Actual house rent paid minus 10% of  your salary due for the relevant period
  3. 50% of salary due for the relevant period

So the least of the above three will be deducted from your HRA you receive and the balance will be taxable.

HRA Exemption in case of Non Metro cities

If you are not living in non metro cities i.e. cities other than Chennai, Mumbai, Kolkata and Delhi then your house rent allowance exemption calculation will differ. In this case, the least of followings will be exempted in the case of non metro cities;

  1. Actual House rent allowance received from employer
  2. Actual rent paid minus 10% of your salary due for the relevant period
  3. 40% of your salary due for the relevant period

For both cases, Salary means basic salary plus dearness allowance if provided in terms of employment plus commission as a percentage of turnover. Salary for the calculation of house rent allowance exemption is taken on due basis. If you have received any advance salary then that amount will not be included in HRA exemption calculation.

Relevant Period for the purpose of HRA exemption calculation means the period during which the said accommodation was occupied by the employee during the previous year

As it’s very clear from the provision that house rent allowance is available only for relevant period, employee can claim exemption only for the period for which he or she has occupied the rented house. If during the financial year he or she has not occupied a rented accommodation then they will not be eligible for HRA exemption.

How to calculate HRA Exemption

Frequently Asked Questions on (HRA)

is a fellow member of the Institute of Chartered Accountants of India. He lives in Bhubaneswar, India. He writes about personal finance, income tax, goods and services tax (GST), company law and other topics on finance. Follow him on facebook or instagram or twitter.

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