Home Rent Allowance Accounting and Taxability (HRA)| With Automated Income Tax Arrears Relief Calculator U/s 89(1) including Form 10 E for the F.Y.2021-22 (Updated Version)

 

Home Rent Allowance Accounting and Taxability. Calculation and taxability of house rent allowance (HRA). Today we are providing a premium guide on the calculation and taxability of house rent allowance (HRA). Now you can find the best notes for calculating home rent allowance. Calculation of house rent allowance [Section 10 (13A) and Rule 2A] and tax liability. How to calculate house rent allowance. We are providing a full calculation for the calculation of house rent allowance. Now you can scroll down and check out the full details about "House Rent Allowance Account and Taxability (HRA)"

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Home Rent Allowance Accounting and Taxability (HRA)

The house rent allowance is paid by the employing authority to the employee to cover any expenses related to the rent of the accommodation which the employee may have to take. The amount of exemption not given under Section 10 (13A) of the Act, the house rent allowance is taxable according to the basic salary?

H.R.A. Exemption

The minimum amount of the following three amounts have been read along with Rule 2A The house rent allowance will be waived under section 10 (13A):

(A) Actual HRA obtained by the employee relating to the “relevant period”

(B) Rent for rent acquired by him under 10% of the "relevant period" salary (rent-payable - 10% salary)

(C) Housing located in Mumbai, Kolkata, Delhior Chennai where 50% of the salary and 40% of the salary located in the house "for the relevant period" elsewhere.

The above three amounts will be exempted from the minimum tax and the balance will be taxable and thus will be included in the total salary of the employee.

Important information

Conditions: Under section 10 (13a), an employee can claim a waiver on receipt of house rent allowance if he does not live in his own house, and pays excess of 10% of salary for residential accommodation.

There is no discount entitlement: HR discount is not available to the employee in the following cases: -

(A) When an employee is in his own home.

(B) When an employee does not pay any rent or incur any expenses for rent.

(C) 10% less than the salary when rent is paid.

Relevant Period: Relevant period means the period occupied by the employees in the previous year.

Salary Money: Total

Basic Salary

Value Added Allowance (if it forms part of retirement benefits)

Commission on turnover.

Download Automated Income Tax House Rent Exemption Calculator U/s 10(13A) in Excel 

 Reasons for affecting the discount: The issue of HRA discount depends on the following factors:

(A) Salary of the employee (b) Receipt of HRA (c) Payment of rent (d) Place of residence

Where these four factors remain the same throughout the year, the exemption u / s 10 (13A) should be calculated

 

"On an annual basis". However, if there is any change in the above issues, the calculation should be done on a "monthly basis" 

HRA. This means:

A	Actual H.R.A. received	******
B	Rent Paid – 10% of Salary	******
C	40% and 50% of Salary	******
	Which ever is less	******

 If an allowance is paid for rent, it is called HRA.

H.R.A. Exemption under Section 10 (13A) and Rule 2A: - If the employee has HRA. It will then be taxable under Section 10 (13A) and as per Under Rule 2A 

Note-1, 40% and 50% are for rent, not for service

Note-2, 50% of salary where accommodation is in Mumbai, Kolkata, Delhior Chennai and 40% of salary where the house is located elsewhere.

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What is HRA (House Rent Allowance)?

HRA or the House Rent Allowance is an amount paid by employers to employees as a part of their salaries. It provides employees with tax benefits for what they pay towards accommodations every year. The decision of how much HRA needs to be paid to the employee is made by the employer based on certain criteria like the salary and the city of residence. 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 are exempt from claiming HRA. This exemption is also available only if the employee is living in rented accommodations. In case the employee lives in his/her own house and does not pay any rent, he/she cannot claim HRA.

In case the employee is living in a rented accommodation and the rent paid exceeds Rs.1 lakh in one financial year then the PAN details of the landlord need to be submitted along with the HRA claims.

How is HRA Decided?

HRA is actually decided based on the salary. There are some other factors that affect it which could include things like the city in which the employee resides. If the place of residence is a metro city then employees are 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, the salary is defined as the sum of the basic salary, dearness allowances, and any other commissions. If the employee is not receiving a dearness allowance or commissions then the HRA will be 50%/40% of the basic salary.

The actual HRA offered will be the lowest of the following three provisions:

• The amount received as the HRA from the employer.
• Actual rent paid less 10% of the basic salary.
• 50% of the basic salary if staying in a metro city and 40% in a non-metro city.

House Rent Allowance (HRA) Calculation

The House Rent Allowance (HRA) is an essential component of an individual's salary that defines the total amount allotted by the employer towards the employee's accommodation as rent. The HRA amount can be beneficial for an employee as it is calculated for tax deductions for a particular financial year. The HRA helps in reducing the taxable income that you are liable to pay. The HRA tax benefits are only applicable for those employees who stay in a rental accommodation. If an individual is staying in his/her own house, he/she won't be eligible to claim the amount for tax deductions. The calculation of HRA is based on various factors, such as the entitlement to 50% of the basic salary, if the employee is staying in a metro city (40% for other cities). The calculation of HRA for tax benefit is considered from one of the following three listed provisions:

• The actual amount allotted by the employer as the HRA.
• Actual rent paid less 10% of the basic salary.
• 50% of the basic salary, if the employee is staying in a metro city (40% for a non-metro city).

The least of the above-mentioned amount will be considered for tax deduction from HRA.

How to Calculate HRA

To understand how to calculate HRA let us return to the example of Ravi Bajaj. He stays in Mumbai and pays a rent of Rs. 10,000 per month. His payslip is shown below.

Example Payslip:

Employee No - 1234	Name - Ravi Bajaj
Joining Date - 21/12/2012	PF No - SB/AYE/1234567/123/1234567
BASIC	30,000	PF	2,000
HRA	13,000	Professional Tax	200
CONVEYANCE	2,000
SPECIAL ALLOWANCE	3,000
MEDICAL	1,250
LTA	5,000
Total Earnings	54,250

For calculating Ravi’s HRA that is exempt from Income Tax we have:

Salary - Rs. 30,000 per month (the basic salary will be considered in this case since there is no commission or dearness allowance)

HRA provided by the company – Rs. 13,000 per month

10% of basic salary (10% of annual basic salary) – Rs. 36,000

Download Automated House Rent Exemption Calculator U/s 10(13A)

 

Now we calculate the three scenarios:

• Amount received as HRA from employer = Rs. 13,000 X 12(months) = Rs. 1,56,000
• Actual rent paid less 10% of basic = (Rs. 10,000 X 12) – Rs. 36,000 = Rs. 84,000
• 50% of basic salary since he lives in a metro = Rs. 1,80,000

In the case of Ravi, it is evident that the HRA amount which will be exempt from tax will be Rs. 84,000 because that is the amount that is the least of the three scenarios.

HRA claim rules

The following rules are applicable for HRA claims:

• The HRA cannot exceed more than 50% of your basic salary.
• You cannot claim for the full rental amount you are paying. The exemption is based on the least of the following options:

1. The actual amount allotted by the employer as the HRA.
2. Actual rent paid less 10% of the basic salary.
3. 50% of the basic salary, if the employee is staying in a metro city (40% for a non-metro city).

• You can take advantage of tax benefits of HRA along with a home loan.
• If you are staying with your parents, you can pay rent to your parents and collect a receipt for HRA claim. However, the rules don't allow you to pay rent to your spouse.
• The landlord's PAN card is mandatory for rent exceeding Rs.1,00,000 per year. The landlord can provide a self-declaration in case if he/she doesn't have a PAN card.
• If your landlord is an NRI, you must deduct 30% tax from the rent amount that needs to be declared.

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Free Download House Rent Exemption from Income Tax U/s 10(13A)

How to calculate the HRA Exemption in Income Tax U/s 10(13A)

The exemption of House Rent Allowance is computed as the following manners U/s 10

(13A)

• The actual amount of HRA received by the employee from his/her employer
• 50% of the Salary for individuals residing in Metro Cities (Delhi, Mumbai, Chennai or Kolkata)
• and 40% other Cities.
• Rent paid in excess of 10% of Salary (Basic Pay + D.A.)[Grade pay also include in case of Govt employee]

For an Example:-

For Kolkata City - [Metro City]

• Basic Pay Rs. 3,00,000/- P.A.
• D.A. Received Rs. 60,000/- P.A.
• House Rent Received Rs. 2,40,000/- P.A.
• House Rent Paid by the employee Rs. 1,20,000/- P.A.
• Hence the Calculation will be as follows :-
• The Actual H.R.A. Received Rs. 2,40,,000/-
• 50% of the salary [Basic Pay + D.A.] = 1,80,000/- [ For Metro City]
• Excess of rent paid over 10% of salary Rs. 1,20,000 -( 10% of Rs.3,60,000[B.pay + D.A.]            =Rs. 84,000

Here is the HRA exemption will be entitled Rs. 1,20,000 -36,000 = 84000/- Relief 

And Rs. 1,56,000  will be Chargeable to Income Tax. 

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Some of these exemptions/ deductions are discussed below as per the Income Tax Rules

House Rent Allowance (HRA) U/s 10(13A) - Supporting documents for rent payments to the landlord are required to be submitted to claim the tax exemption on HRA. However, if the HRA received per month is Rs 3,000 or less, the employee need produce any supporting documents for such rent payments, at the time of assessment/ inquiry, shall still have the right to call for the supporting documents.

 It is worthwhile to note that as per the latest circular if the annual rent paid by the employee exceeds Rs 1,00,000 per annum, it is mandatory for the employee to report the PAN of the landlord to the employer. In case the landlord does not have a PAN, a declaration to this effect from the landlord along with his name and address should be submitted.  If the exemption is not considered by the employer, an option to claim it on the tax return is available

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Leave Travel Allowance (LTA) - LTA can be exempted from tax twice in a block of four calendar years. The current block of four years is 2010-13.The exemption is only for travel expenses incurred towards self and eligible family members based on some specified conditions. The exemption is not available for foreign trips. If the employee does not avail of LTA, either one or on both the occasions during the block of four calendar years, only one trip can be carried forward to be availed in the succeeding block. The latest circular issued by the tax authorities casts an obligation on the employer to preserve the supporting documents for LTA exemption. Hence, employees have to submit the actual proof of travel to the employer to avail of the tax exemption at the withholding stage.

Medical expenses - Reimbursement towards medical expenses incurred in connection with family members to the extent of Rs 15,000 is exempted from tax.  Family members include parents, brothers, and sisters or any of them wholly or mainly dependent on the individual. The definition of family members does not cover parents-in-law. Unlike other exemptions, it may not be feasible to claim this relaxation in the tax return as the benefit is available only in respect of reimbursement by the employer.

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Housing loan certificate - Employees could reflect a loss from house property on incurring interest expenditure on housing loan.  Repayment of principal amounts could provide a deduction within the total limit of Rs 1,00,000 along with other eligible investments under Section 80C.  At the time of submitting the proof to the employer, only a provisional certificate for the housing loan is likely to be available. However, in case of prepayments or change in the EMI amount after the submission of the provisional certificate, the total interest and principal repayment amount, as indicated in the provisional certificate, will change. This will require an adjustment to the housing loan interest and principal repayment in the tax return, possibly resulting in additional tax payment/refunds. This needs to be considered by the employees while filing their tax returns.

The deduction under Section 80C is limited to Rs 1,00,000 and covers investments such as contribution towards provident fund account, LIC policy, and public provident fund. Some of these are listed below -

The premium for life insurance policy for self, spouse and any child shall be eligible for deduction.  For policies issued after 1 April 2012, the deduction shall be restricted to the premium amount not exceeding 10 percent capital sum assured. Provide your employer with these details to substantiate that these limits are being maintained to ensure that the benefit is granted. 

Contribution to a Public Provident Fund account in the name of self, spouse and any child is eligible for deduction under Section 80C. The maximum contribution to this account during the financial year cannot exceed Rs 1,00,000.  The annual accretion to the account is not taxable. A copy of the PPF passbook and payment receipt should be provided to the employer. These days, online payments have also been enabled. 

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Five-year bank fixed deposits (FDs): FDs with a scheduled bank with a lock-in period of five years are eligible for deduction under section 80C. However, it needs to be kept in mind that the interest on these FDs is taxable and should be included in the return. 

Equity-linked savings schemes qualify for deduction under Section 80C. An account statement from the mutual fund house or an acknowledgment receipt for the investment needs to be submitted to the employer to claim this deduction. Long-term capital gain and dividend on these funds and scheme are exempted from tax where securities transaction tax is paid. However, these funds and schemes have a lock-in period of three years. 

Employees may submit details of tuition fees for full-time education of any two children to any university, college, school or other educational institution situated in India whether at the time of admission or thereafter.   Deduction under Section 80C is available for such payments. Full-time education includes play-school, pre-nursery and nursery classes. Further, the amount eligible for deduction shall include any payment of fee except the amount paid as development fee or donation or capitation fee.

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Medical insurance premium: Premium paid in any mode other than cash for self, spouse, and dependent children can be deducted up to Rs 15,000 per annum; an additional Rs 5,000 can be claimed if they are senior citizens.  In addition to this, the premium paid for parents' health cover can be claimed as the deduction up to Rs 15,000, with an additional deduction of up to Rs 5,000 for senior citizens. Further, the deduction can be claimed up to Rs 5,000 (paid in any mode including payment by cash) on account of preventive health check-up within the overall limit of Rs 15,000/20,000. Receipts of insurance premium/ health checkup expenditure need to be submitted to the employer to claim this deduction.

Interest on education loan: Deduction can be claimed for interest paid on an education loan taken from an approved institution for higher education of self/spouse/ children/student for whom the employee is a legal guardian. It is available for eight years starting from the financial year in which the individual starts paying interest.

Donations to certain funds/charitable institutions: Section 80G provides for deduction on account of donations made to various funds, charitable organizations, etc. However, for tax withholding purpose, the employer considers only the donations made to the Prime Minister's National Relief Fund, the Chief Minister's Relief Fund or any other fund notified by the tax authorities in this regard.  Other donations must be claimed separately on the tax return

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