Calculation of Exemption of HRA.from Salary head in Income tax return
Points to be noted while calculating exemption of HRA from salary head in income tax return-
• House Rent Allowance is the amount paid by employer to employee as a part of his salary. The house rent allowance is regulated by the provisions of Section 10(13A) of the IT Act.
• House rent allowance benefits are only available to salaried individuals. Self-employed individuals cannot claim for exemption of House Rent paid by them to the house owner in their income tax return . This exemption is only available if the employee is living in rented a accommodation. In case the employee lives in his own house and does not pay any rent, he cannot claim HRA exemption. House Rent allowance exemption cannot exceed 50% of employee’s basic salary.
• The employee can take advantage of tax benefits of HRA along with a home loan.
• If the employee is staying with his parents, he can pay rent to his parents and collect a receipt for HRA claim. However, the rules don’t allow the employee pay rent to his wife.
• The landlord’s PAN card is mandatory if the rent is paid exceeding Rs.1,00,000 per year. The landlord can provide a self-declaration in case if he doesn’t have a PAN card.
• The landlord is a Non-Resident Indian, it is must to deduct 30% tax from the rent amount.
• HRA exemption is actually decided based on the salary. The factors that affect it which includes things like the city in which the employee resides. If the employee’s residence is a metro city then he is entitled to an HRA equal to 50% of the salary. For all others cities the entitlement is 40% of the salary.
• For the purpose of calculating the HRA exemption, the salary is defined as the sum of the basic salary and dearness allowance (Basic pay+ DA). If the employee is not receiving a dearness allowance then the HRA exemption will be 50% of the salary for metro city and 40% of the basic salary for other cities.
• Calculation of exemption of House Rent Allowance will be the lowest of the following of three:–
• The amount received as the HRA from the employer.
• Actual rent paid less 10% of the basic salary. [(Actual Rent paid)-10% of (Salary+DA)]
• 50% of the basic salary if the employee is staying in a metro city and 40% of the basic pay if the employee is staying in a non-metro city. (Here basic pay means Basic pay + DA)
The least of the above mentioned amount will be considered for tax deduction from House Rent Allowance.
EXAMPLE
Imagine an employee is Receiving a monthly salary of Rs 57800/-, Dearness amount Rs 4046/- and house rent allowance Rs 4624/-. Then his monthly salary will be Rs 61846/- for the purpose of HRA exemption calculation. Imagine he is giving 10000/- per month as house rent and he lives in Sanchore. Then he will receive lowest of the following of the three-
1- Amount of HRA Received from Employer. 4624 x 12=55488/-
2-Actual Rent paid less 10% of Basic Salary (10000×12)-(61846×12)/100*10=45785
3- 40% of of Basic Salary because he is staying in a non-metro city. (61846*12)/100*40=296861
He will get exemption of lowest of the above three Rs 45785/-. His taxable house rent allowance will be-(4624*12)-45785=9703/-