House Rent Allowance (HRA) Taxability & Calculation |
Posted: June 23, 2017 |
Every salaried individual gets House Rent Allowance (HRA) as a basic component of their salary. House Rent Allowance or HRA is given to an individual is paid out to an employee to help him/her bear the expenses of living in a rented apartment/flat/house. But being an allowance, HRA is taxable. However, income tax authorities have made provisions of tax exemption for employees with respect to the HRA paid out to them by their employers. This tax deduction on HRA comes under the Section 10(13A) of the Income Tax Act and Rule 2A of the Income Tax Rules. But here it is important to know that the entire HRA is not tax deductible. An employee can claim tax deduction on his/her HRA, if he stays in a rented house, by producing rent receipts. Here you must note that the entire amount of HRA becomes taxable for those staying in their own houses. So in order to avail the tax benefits of HRA, one needs to reside in a rented house, not owned by them, and pay the rent for the same. How to Calculate HRA?HRA calculation largely depends upon four vital aspects. These aspects are:
HRA ExemptionYou can avail tax exemption on your HRA on one of the following criteria:
The minimum of the above criteria is used to calculate the tax exemption on HRA. Remember, if your rent and other aspects do not change, then the tax exemption can be calculated yearly. However, if there are any changes then the calculation would be done on a monthly basis. Tax Exemption on HRA – ExampleLet’s understand how tax exemption on HRA is calculated using an example. Let’s say, Amit lives in a rented flat in New Delhi. He pays a monthly rent of Rs. 10,000. His basic pay is Rs. 30,000 per month and the HRA component of it is Rs.15000. Here’s how his HRA tax exemption will be calculated:
Now, as discussed earlier, tax exemption on HRA is considered to be lowest of the four different aspects of calculation. Here, Rs. 84,000 is the lowest amount among the aforementioned so Amit can avail the maximum tax deduction of Rs. 84,000. Tax Exemption on HRA – Claim RulesThough tax exemption on HRA is available to all salaried individuals, you need to follow certain to claim exemptions on HRA. Let’s check out what these HRA claim rules are:
Conclusion We’re sure now you understand everything about HRA and how to calculate tax exemptions on HRA. So now calculate the tax exemptions on HRA yourself and stay prepared to save a sizeable part of your salary from being eaten by the tax monster.
|
||||||||||||||||||||||||||||||||||||||||||
|