Salary: House Rent Allowance (HRA)

House Rent Allowance (HRA)

           House rent allowance is an allowance which is given by the employer to his employee for the accommodation expenses i.e. rent on residential house incurred by the employee. House rent allowance (HRA) is exempted under section 10(13A) to some extent, beyond that it is taxable under the head of “Salary”. House rent allowance (HRA) is exempt under section 10(13A) to the extent minimum of the following amounts

       A)     Actual house rent allowance (HRA) received for the relevant period from the employer

       B)      Excess of rent paid over the 10% of the salary for the relevant period

     C)     For the relevant period, 50% of the salary where the residential house is situated at the metro cities i.e. Mumbai, Delhi, Calcutta, Chennai and 40% of the salary where the residential house is situated at any other place

               The minimum of the above amounts will be exempt as house rent allowance (HRA) for the relevant period. In excess of the above amount is included in the gross salary of the employee for the relevant period

Example:

            Mr. Shiv is an employee under XYZ Company situated at Mumbai and received Rs. 4000 as House rent allowance (HRA) for the financial year 2012 – 13. His salary is Rs. 12000 per month and he paid a rent of Rs. 4000 per month.

Answer:

Actual House Rent Allowance (HRA) received     48,000                   (4000 P.M. * 12 Month)

Rent paid in excess of 10% of salary                         33,600                   [(4000 – 1200) * 12 Month]

50% of salary (Location at Mumbai)                         72,000                   [(12000 * 12) * 50%]      

The exemption will be a minimum of the above i.e.       33,600 Rs.

Taxable HRA will be                                                       14,400 Rs.            [48000 – 33600]

             In the above Example if Mr. Shiv is worked at Pune i.e. other than four metro cities than exemption under section 10 (13A) would be as under.

Answer:

Actual House Rent Allowance (HRA) received     48,000                   (4000 P.M. * 12 Months)

Rent paid in excess of 10% of salary                         33,600                   [(4000 – 1200) * 12 Month]

40% of salary (Location at Mumbai)                         57,600                   [(12000 * 12) * 40%]      

The exemption will be a minimum of the above i.e.       33,600 Rs.

Taxable HRA will be                                                       14,400 Rs.            [48000 – 33600]

               For the above purpose salary means Basic Salary + Dearness Allowance (D.A.) (allowable only) + Fixed percentage of commission if receivable based on a fixed percentage of turnover achieved by the employee would form part of the salary.

             In case an employee is not incurred any house rent expense and employer paid any amount for a house rent allowance than such HRA will be included in the gross salary of the employee.