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What is House Rent Allowance: HRA calculation, tax exemption, benefits and more

House Rent Allowance (HRA) is a part of income under the main salary. It is an amount that an employer pays to its employees to compensate for rent accommodation to live in the place of employment. While deduction for HRA under Section 10(13A) of the Income Tax Act, 1961 is allowed, House Rent Allowance may be fully or partially taxable.
The HRA deduction calculation depends on the employee’s salary, the HRA received, the actual rent paid, and the location of employment and residence.

  1. What are the HRA exemption rules?

    HRA is majorly determined by an individual’s salary. As per the I-T rules, the tax-exempt part of the House Rent Allowance is the minimum of the following amounts;

    – Actual HRA received by the employer.
    – 50% of basic salary if the employee resides in metro cities or 40% if the employee lives in a non-metro city.
    – Excess of rent paid in a year over 10% of annual salary.

  2. Who can I avail tax exemption on HRA?

    This tax benefit is only available to salaried individuals (opted for the old tax regime) who have House Rent Allowance as a part of their salary structure and are staying in rented houses. Self-employed individuals cannot avail this deduction.
  3. Which section of the income tax does HRA come under?

    HRA received by an individual is partially or fully exempt as per the conditions mentioned in Section 10(13A).
  4. How is HRA calculated?

    For salaried individuals, House Rent Allowance is the lowest of the following:

    – HRA paid by the employer
    – Actual rent paid minus 10 per cent of basic pay (salary + DA)
    – 50 per cent of basic salary for those living in Delhi, Mumbai, Chennai, Kolkata etc. or 40 per cent of basic salary for those living in non-metro cities.

    For self-employed individuals, HRA is the lowest of:

    – Rs 60,000.
    – 25% of gross total income.
    – Actual rent paid for accommodation minus 10% of gross total income.

  5. What are the tax benefits of HRA?

    – It reduces your taxable income.

    – You can claim deduction on HRA in income tax filing even if you live with your parents, as long as you produce proof of paying rent.

    – You can claim HRA tax benefit while paying EMI on a home loan as long as the house is not located in the city of employment/ residence.

  6. How to claim HRA if not mentioned in Form 16?

    If HRA is not mentioned in Form 16, that means your employer has not provided a separate component of House Rent Allowance. HRA u/s 10(13A) can be claimed when the employer gives a separate component towards HRA. In the absence of it, you can claim for rent paid under Section 80GG.

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