HRA (House Rent Allowance) Section 10(13A).
What Is House Rent Allowance?
House Rent Allowance (HRA) is an allowance paid by an employer to its employees for covering their house rent. Such allowance is taxable in the hand of the employee. However, Income Tax Act provides a deduction of hra under section 10(13A) subject to certain limits. Self employed (Proprietor) individuals are not allowed to take any deduction under this section.
All big companies include a part of salary as HRA as it is a good tool for tax saving by salaried individuals. Deduction under this section is allowed in same manner for all employee whether central or state government employees or private organisation’s employees.
How is Exemption on HRA calculated?
Actual HRA received from the employer.
For those living in metro cities: 50% of (Basic salary + Dearness allowance)
For those living in non-metro cities: 40% of (Basic salary + Dearness allowance)
Actual rent paid minus 10% of (Basic salary + Dearness allowance.
Conditions To Be Satisfied For Claiming HRA Deduction
This deduction is allowed only when an employee actually pay rent for his residence purpose. If no rent is paid for any period then no deduction is allowed for that period. Rent receipts may be asked as proof by the income tax officer. No documents are required to be attached at time of filing ITR.
If there is any change in the amount of salary, rent or HRA or city of residence from metro to non-metro or vice versa during the year then such deduction is calculated on monthly basis.
Even if rent is paid to any family members, HRA is allowed. There is no legal requirement but it is advisable to pay such rent on monthly basis and through bank transfer.
Bajrang Prasad Ramdharani 2013 ITAT. Also keep in mind that such rent paid to a family member is taxable in hands of such member. However he/she gets standard 30% deduction, so you will be in benefit. (Considering the slabs in which you and family member falls)
There is no requirement that employee should not own a house property. If the employee resides in a rented property, he can claim exemption even if he owns a house property in the same or different city.
Deduction of house rent allowance, home loan interest under section 24b, repayment of housing loan under section 80C can be claimed simultaneously.
If an employee receives HRA which is allowed as deductible under this section then no deduction is allowed under section 80GG.
No deduction is allowed under this section if employee does not receive any house rent allowance from employer. However deduction for rent paid can be claimed under section 80GG.
If maintenance charges are paid separately then no deduction is available for the maintenance charges.
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