House rent allowance exemption benefit

Meaning: House Rent Allowance is an allowance that depends on the "Basic" component of salary. It also depends on the area (metropolitan or non-metropolitan): in a metropolitan area it is 50% of Basic, and in a non-metropolitan area it is 40% of Basic.

Who can claim:

1. HRA for Self-Employed Individuals- Individuals who are self-employed can also avail of deductions and tax exemptions towards House Rent Allowance (HRA). They can claim these benefits by utilizing Section 80GG.
2. HRA for Salaried Individuals- Section 10 (13A), rule number 2A of the Income Tax Act allows salaried individuals to claim exemptions for House Rent Allowance (HRA).

Calculation: There are three scenarios for calculating HRA:
HRA for Salaried Individuals:
A. HRA received from an employer.
B. HRA paid to landlord.
C. HRA paid -10% of basic.

For example: a. HRA received 7500.
b. HRA paid 8100
c. 8100-10% of 15000 that is 8100-1500=6600

The lowest of the above amounts is exempt and the rest is taxable.

Tax computation:
Taxable-HRA- 7500*12=90,000
Exemption: 6600*12= 79,200, so 90,000-79200=10800.

HRA for Self-Employed Individuals:
Calculation:
a. 5000/- pm
b. 25% of adjusted total income
c. Actual rent should be less than 10% of adjusted total income.

The lowest of the above amounts is exempt and the rest is taxable.

Important points:

1. Proof should be for the financial year.
2. Proper signature of the landlord
3. Original stamp on rent receipts
4. If an employee claims HRA above 83,333, the employee's PAN card is required.