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House Rent Allowance (HRA)

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House Rent Allowance (HRA) is a tax-exempt allowance provided by employers to their employees as a reimbursement for rent paid for residential purposes. It is a common employee benefit in India.

Eligibility:

  • Employees employed in India
  • Employer-provided accommodation is not available or is inadequate
  • Employee’s total salary is below a certain limit (usually around Rs. 25 lakhs per annum)

Rate of HRA:

The HRA rate is typically 8% of the basic salary for the first two tiers of cities and 10% for the third tier. The HRA rate is subject to change based on the city of residence.

Tax Exemption:

The HRA is exempt from income tax, but it is taxable if the employee receives a higher rent allowance than the actual rent paid.

Components of HRA:

  • Basic Rent: The actual rent paid for the residential premises.
  • Dearness Allowance: An additional allowance based on the cost of living in the city.
  • Other Allowances: Any other allowances related to rent, such as municipal taxes or service charges.

Calculating HRA:

The HRA is calculated as a percentage of the basic salary. The formula is:

HRA = Basic Salary x HRA Rate

Example:

An employee earning Rs. 50,000 per month in Mumbai would be eligible for an HRA of Rs. 4,000 (8% x 50,000).

Additional Notes:

  • HRA is not applicable to government employees or employees of certain other specified organizations.
  • The HRA rate may vary between employers.
  • The actual amount of HRA received may vary based on the individual’s circumstances.
  • If the HRA received exceeds the actual rent paid, the excess amount is taxable.

FAQs

  1. How much HRA can I claim?

    You can claim the lowest of these: actual HRA received, 50% of basic salary (metro) or 40% (non-metro), or rent paid minus 10% of basic salary.

  2. How can I calculate my HRA?

    Use this formula: the lowest of actual HRA, 50% or 40% of basic salary, or rent paid minus 10% of basic salary.

  3. How much HRA can I claim without receipts?

    Without receipts, you can claim HRA if rent is below โ‚น1 lakh annually. Above that, receipts are needed.

  4. What happens if HRA is more than โ‚น1 lakh?

    For HRA over โ‚น1 lakh annually, you must submit rental receipts and, if required, the landlordโ€™s PAN.

  5. What are the rules for HRA exemption?

    To qualify, rent must be more than 10% of basic salary. Exemption is the least of actual HRA, 50% or 40% of salary, or rent paid minus 10% of basic.

Disclaimer

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