HRA (House Rent Allowance): Full Form, Calculation, Examples, Meaning, Formula & Receipt Format

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The Government of India constantly works to reduce the economic burden of working professionals by providing them with different forms of tax exemptions or allowances. House Rent Allowance or HRA is one of them.

HRA is a component of salary provided by employers to employees to meet their rented accommodation expenses.

To understand HRA better, let’s discuss the important factors associated with it.

What is HRA?

House Rent Allowance serves as a financial relief, easing the housing expenses for individuals residing in rented homes. This allowance is determined by factors like salary, city of residence, and the company's salary structure. The amount of HRA may vary depending on the location where the employee resides. Individuals living in metro cities receive larger allowances owing to the increased cost of living compared to the working professionals of non-metro regions.

To simplify, Housing Rent Allowance means a benefit provided by your employer to cover the cost of rented accommodation. For those who live in rented houses, it offers an allowance for managing their overall living expenditures and claim it as a tax exemption. For those who don’t have a rented house, they cannot claim HRA.

HRA Calculation with Example

HRA calculation is based on certain parameters, and the actual amount received by an employee may vary depending on factors such as the basic salary, actual rent paid, and the city of residence. The HRA calculation is subject to specific rules outlined by the employer and the tax authorities.

Formula of HRA Calculation

Actual HRA received from the employer
50% of the basic salary (employees of metro cities) or 40% of the basic salary (for working professionals of non-metro cities)
Actual rent paid - 10% of the basic salary

For Example:

Assume an employee lives in a metro city and receives a basic salary of Rs. 50,000 monthly. Their employer provides an HRA of Rs. 20,000 monthly, and they pay a monthly rent of Rs. 15,000. Now, let's

Calculate the HRA deduction.

Actual HRA received: Rs. 20,000

50% of the basic salary: 50% of Rs. 50,000 = Rs. 25,000

Actual rent paid - 10% of the basic salary:

(Rs. 15,000 - 10% of Rs. 50,000) = Rs. 15,000 - Rs. 5,000 = Rs. 10,000

The actual amount is Rs. 10,000.

Is HRA taxable?

The taxability of HRA depends on multiple circumstances, including the actual HRA received, the amount of rent paid, and the norms and regulations set by the tax authorities. Here's a thorough explanation:

HRA Exemption:

HRA exemptions are available under Section 10(13A) of the Income Tax Act in India. The amount of exemption is determined by the least of the following three components:

Actual HRA received
50% of the basic salary (for those living in metro cities) or 40% of the basic salary (for those in non-metro cities)
Actual rent paid - 10% of the basic salary

Fully Taxable Scenario:

The entire HRA sum is taxed if the employee does not rent a residence or if HRA is not included in their pay scale.

Tax Deduction for Home Loan and HRA:

If an individual meets the requirements outlined in the Income Tax Act, they may be able to claim tax advantages for both a home loan and an HRA at the same time.

HRA Rules for Self-Employed Individuals

HRA benefits are typically not applicable to self-employed individuals, as this plan is designed for salaried employees. However, there are certain conditions under which self-employed can take advantage of this provision:

Self-employed individuals may claim a tax deduction on HRA under Section 80GG of the Income Tax Act, 1961, if the rent paid is considered a business expense.
To be eligible for this tax deduction, self-employed individuals must not own residential property in the same location and should not receive HRA from any employer.
The tax deduction allowable is either Rs. 5,000 per month or 25% of the total income, whichever is lower, as per the guidelines in Section 80GG.
Submission of a rent agreement is mandatory as proof to claim the tax deduction.
Self-employed individuals can claim this tax deduction when filing their Income Tax Return (ITR).

It is crucial to note that tax deductions under Section 80GG for self-employed individuals are subject to prevailing tax laws and may be subject to change. Therefore, consulting with a tax advisor is recommended for further details.

How to Claim HRA Exemption?

To claim HRA exemptions, employees are usually required to submit proof of rent payment, such as a house rent receipt format or a rental agreement. It's crucial to maintain accurate documentation to support the claimed exemption.

HRA for Salaried Individuals

For salaried employees, a house rent allowance is an aspect of the wage that helps with the cost of renting a residence. This amount is determined by actual rent paid, base pay, and the city of residence. Working professionals are required to show documents of rent payments to receive such benefits. Comprehending HRA criteria is essential for maximising tax obligations and budgeting.

Documents Required to Claim the HRA Exemption

Here is the list of documents required to claim HRA exemption:

PAN card
The landlord’s PAN card
Rent agreement
Rent receipts for the respective financial year

How to Claim Deduction Under Section 80GG?

To claim a deduction under Section 80GG, follow these steps:

Ensure you don't own a house in the city of employment.
Submit Form 10BA while filing your income tax return.
Compute the eligible deduction using the specified formula.
The deduction is the lowest of the following: Rs. 5,000 per month, 25% of total income, or actual rent paid minus 10% of total income.

Consult a tax professional for accurate guidance.

Conditions for Seeking HRA Exemption

Here are a few conditions under which a working professional can claim HRA exemption:

Individuals must reside in a rented house.
Submission of rent receipts for the relevant financial year must be provided.
Individuals may claim deductions either under Section 10(13A) or Section 80GG, but not both simultaneously.
Under Section 10(13A), the HRA deduction is limited to the actual HRA received from the employer.

FAQs About Telangana Indiramma Indlu Housing Scheme

1. What is the HRA limit for 2024?

The HRA exemption is determined in accordance with the Act, allowing individuals to claim the least of the following:

40% of the basic salary for non-metro cities
50% of the basic salary for metro cities

2. What is the HRA rule for income tax?

House Rent Allowance is a component of salary that provides tax benefits. The exemption is calculated based on the lowest of actual HRA received, 50% of salary (basic + dearness allowance) for metro cities/40% for non-metros, or actual rent paid minus 10% of salary. However, proof of rent and employment are required to get this benefit.