HRA or House Rent Allowance is one of the most important element of employee’s salary and till certain limit, it is exempted from tax liabilities. However, the income tax liabilities depend on the allowance one have received and the amount one have paid. This page explains about all the essentials of HRA in brief to educate our valuable users.
HRA or House Rent Allowance is a salary component given by the employer to its employee for their monthly rent of the accommodation and if put in general terms, for monthly rent.
House Rent Allowance or HRA can be availed only to the people who are renting a house. The rental agreement can be made between any two parties except for your spouse.
HRA is an important component of your salary as it provides the individuals to saves their income tax.
HRA depends on multiple factors and the tax exemption is calculated keeping the below parameters in mind:
Keeping the above parameters in mind, the least of the below three will be exempted u/s 10(13A).
(Metro Cities – Delhi, Mumbai, Chennai and Kolkata)
House Rent Allowance provided by the employer to his employee will be taxable under “Income from Salary” to an extent that is not exempted u/s 10(13A).
For better understanding of the HRA calculation, consider Mr. ABC XYZ stays in Lucknow and pays a monthly Rent of Rs 9,000 to his landlord. Below is the payslip provided by his employer
|Name – ABC XYZ||PF Number – ABC/AB/0000000/000/0000000|
|Employee ID – 0000||Date of Joining –1st April 2016|
|Provident Fund (PF)||2,000|
Considering the above-given scenario, calculating HRA which is exempted from being taxable will be:
Salary is Rs. 20,000 per month, HRA provided by Employer to Employee = Rs 8,000 X 12 = Rs 96,000 and 10% of annual basic salary = Rs (20,000 X 12) X 10% = Rs 24,000
Now looking at the PaySlip of Mr. ABC XYZ, we’ll calculate three scenarios:
The least amount of the above three calculations will be HRA amount that will be exempted from tax and that will Rs 84,000.
Further, to calculate the Amount of HRA which will be taxable:
Taxable Amount of HRA = HRA received - Exempted u/s 10(13A)
Hence, Taxable Amount of HRA= Rs 96,000 – Rs 84,000 = Rs. 12,000 will form part of your taxable salary.
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