Jun 22, 2023Homes and People

House Rent Allowance (HRA) Section 10(13A) for home-buyers

by Godrej Properties Limited

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House Rent Allowance (HRA) is a provision under Section 10(13A) of the Income Tax Act that provides tax benefits information to individuals who receive a rental allowance from their employer. While HRA is commonly associated with tenants who pay rent for their accommodation, it can also benefit home buyers under certain circumstances.

What is House Rent Allowance under Section 10 13A?

HRA, governed by Section 10 13A of the Income Tax Act, is an integral part of an employee's salary. Employers provide it to assist employees in covering their rental expenses. HRA is applicable when an employee pays rent for a residential property, regardless of the property owner, except for the employees themselves. This allowance is applicable to both government and private sector employees.
 

Types of Expenses Covered under House Rent Allowance under Section 10 13A

HRA covers various expenses associated with renting a house. These include rent paid for the property, maintenance charges, and similar expenses. However, HRA does not cover certain expenses like electricity, water, and parking charges.
 

Expenses Covered by HRAExpenses Not Covered by HRA
Rent paid for the propertyElectricity charges
Maintenance chargesWater charges
Other similar expensesParking charges


Maximum HRA Limit under Section 10 13A

The maximum HRA an employee can claim under Section 10 13A is calculated as the minimum of the following three amounts:
 

Maximum HRA CalculationHRA Eligibility
Actual HRA received from the employerThe actual amount of HRA received from the employer.
50% of the basic salary for employees living in metro cities50% of the employee's basic salary if they reside in a metro city.
40% of the basic salary for employees living in non-metro cities40% of the employee's basic salary if they reside in a non-metro city.
Rent paid minus 10% of basic salaryThe rent paid by the employee for accommodation minus 10% of their basic salary.


Here's How HRA Exemption under Section 10(13A) Works:

  • Eligibility: To claim HRA, you must be a salaried individual receiving HRA as a part of your salary. HRA exemption is not available to individuals who are self-employed.
  • Residential Accommodation: You must be living in a rented residential accommodation. If you own a house and live in it, you cannot claim HRA for that property.
  • Rent Payment: You must pay rent to the landlord for the residential accommodation you are living in. Rent paid to family members (parents, etc.) is also eligible for HRA exemption.
  • Salary Structure: Your salary structure should include an HRA component. The amount of HRA received should be mentioned separately in your salary slip or employment contract.
  • Calculation of HRA Exemption: To calculate your House Rent Allowance under Section 10(13A) limit, determine the minimum amount among these three conditions:
  • actual HRA received,
  • rent paid minus 10% of the salary,
  • and 50% of the salary for metro cities (or 40% for non-metro cities)
  • Submission of Rent Receipts: To claim HRA exemption, you need to submit rent receipts or any other proof of rent payment to your employer.
  • Income Tax Return (ITR): If you are eligible for HRA exemption, you can claim it while filing your ITR. You may need to provide details such as the amount of HRA received, the rent paid, and the name and address of the landlord.

How to Calculate House Rent Allowance under Section 10(13A)

Let's assume an employee in a metro city has a monthly salary of Rs. 50,000, receives an HRA of Rs. 20,000, and pays rent of Rs. 15,000.
 

The minimum of the three amounts below will be exempt from tax:

  1. Actual HRA paid by the employer = Rs. 20,000
  2. 50% of the salary (for employees in metro cities) = Rs. 25,000
  3. Actual rent paid minus 10% of the salary = Rs. 5,000 (Rs. 15,000 minus 10% of Rs. 50,000)

In this case, Rs. 5,000 per month will be exempt as HRA, and the balance of Rs. 15,000 per month will be subject to taxation.
 

It's important to note that HRA exemption can only be claimed if you fulfil the necessary conditions and provide proper documentation.
 

Why is House Rent Allowance under Section 10 13A for working professionals, landlords, and employees important?

House Rent Allowance (HRA) under Section 10 13A is significant for working professionals, landlords, and employees. For employees, it is a tax-saving component and reduces their rental expenses. Landlords benefit from this provision as it influences tenant decisions when seeking rental properties. Understanding HRA calculations is crucial for employees to determine their eligible claims and potential tax savings.
 

Frequently Asked Questions

1. Is it possible to claim both HRA and rent deductions under Section 80GG?

Ans: No, HRA and rent deduction under Section 80GG cannot be claimed simultaneously.
 

2. What documents are necessary to claim HRA exemption?

Ans: Rent receipts and rental agreement must be submitted for HRA exemption, with the landlord’s PAN if rent exceeds Rs. 1 lakh annually.

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