7/29/2019 About HRA Exemption

1/1

Pragnaa HRCS

http://pragnaa.webs.com/ E-mail: info@pragnaahrcs.com

Knowledge Corner

Do you know about Exemption provided in House Rent Allowance?

It is also a taxable receipt, as confirmed by the Supreme Court. However, section 10 (13A) of the Act grants

exemption in respect of any house rent allowance received by an employee from his employer, but certain

basic conditions must be satisfied for this purpose.

The following conditions must be satisfied:

The allowance must be specifically granted to the employee by his employer to meet expenditureactually incurred on payment of rent in respect of residential accommodation occupied by the

employee,

The employee must have actually incurred expenditure on payment of rent. The residential accommodation occupied by the employee should not be owned by him. The house rent allowance paid to an assessee who is not in occupation of rented premises but resides

in his own house is not for reimbursing or meeting any amount paid away or any amount that has

gone out of his coffers as rent and therefore, is not exempt from tax. The board have also clarified

that house rent allowance paid to a person, who is living in his own house for which he does notactually pay any rent, is not exempt from tax. The house rent paid should be verified through rent

receipts.

Quantum of exemption For purpose of quantifying the exemption, the place where the residential

accommodation is situated is divided into:

(i) Major cities (Mumbai, Kolkatta, Delhi and Chennai)(ii) Other places

The amount exempt will be the LEAST of the following

MAJOR CITIES OTHER CITIES

Allowance actually received Rent paid in excess of 10 per cent of salary 50 per cent of salary

Allowance actually received Rent paid in excess of 10 per cent of salary 40 per cent of salary

Meaning of SALARY

Salary for this purpose will include dearness allowance if it counts for retirement benefits, and commission;

but excludes other allowances and perquisites.

ILLUSTRATIONS

An employee working in Chennai is in receipt of house rent allowance of Rs. 2500/- per month. He is

occupying a residential accommodation, for which rent paid by him is Rs. 4000/- per month. He is getting a

salary of Rs. 5000/- per month and dearness allowance of Rs. 2500/- per month, which counts for retirementbenefits.

The exemption will be worked out as follows:

i) House rent allowance received for the year (Rs. 2500/- * 12) - Rs. 30000/- (A)ii) Rent paid less 10 per cent of salary including dearness allowance - Rs. 39000/- (B)

[48000 minus 90000*10/100]

iii) 50 per cent of salary (since it is major city) - Rs. 45000/- (C)Hence, the exemption admissible (least of A, B and C) in this case is - Rs. 30000/-