HRA full form – House Rent Allowance (HRA) is a component of most workers’ pay packages. HRA is not entirely taxable, even though it is a part of your salary. A portion of HRA is excluded from taxation under Section 10 (13A) of the Income Tax Act of 1961, subject to some provisions.
Until calculating taxable income, the sum of HRA exemption is deducted from the overall income. Which allows an individual to save money on taxes.
However, bear in mind that if an employee lives in his or her own home and does not pay rent, the HRA collected from his or her employer is entirely taxable.
The sum that should be deducted is the least of the following:
This tax incentive is only applicable to salaried people who have an HRA portion of their pay structure and live in rental housing. The allowance is not available to self-employed workers.
Employed employees could also claim HRA. You can claim the benefits under 80GG, and this section can also be utilized to claim HRA tax exemptions by the salaried when they don’t get HRA.
The individual seeking the tax exemption cannot own the rental premises. So, if you live with your parents and pay the rent, you can say HRA deduction. You, on the other hand, are unable to afford your spouse’s rent. Since you are expected to take the housing together in terms of your friendship.
As a result, the Income-tax Department will scrutinize these transactions.
And if you are renting the house from your parents, make sure you have documentary evidence that your tenancy involves financial transfers between you and your parents. So keep track of your financial transactions and rent receipts because the tax department may deny your argument if the transactions’ validity is questioned. The Mumbai income tax appellate tribunal recently dismissed a salaried taxpayer’s HRA petition because the claim did not seem valid to the tax officials.
If your own home is leased out or you live in another place, you will take advantage of the simultaneous value of a discount for the home loan against ‘interest charged’ and ‘principal repayment’ as well as HRA.
HRA is an essential part of a person’s compensation package. The cumulative amount allocated by the employer for the employee’s housing is referred to as rent. The sum set aside for HRA is useful to employees when it is used to measure tax deductions for a certain fiscal year.
HRA will also help you save money by lowering your taxable taxes.
The tax incentives associated with HRA are only available to salaried people who live in rented housing. An employee who lives in his or her own home is not entitled to report the balance as a tax deduction.
HRA is calculated based on a variety of considerations, including the employee’s right to 50% of his or her minimum wage if he or she lives in a metro city and 40% if he or she lives in either of the other cities.
The following three provisions are taken into account when calculating HRA for tax purposes:
Consider the situation of Mr. Shiva, a salaried person who lives in Mumbai. He pays a monthly rent of Rs.10,000 for his leased accommodation. This equates to Rs.1.2 lakh per year. His monthly earnings as seen in the table below:
Per month, he has a PF of Rs.2,000 and a technical tax of Rs.200 deducted from his pay.
In Mr. Shiva’s case, the tax-free portion of his HRA will be the lowest of the following, based on his annual earnings:
|Leave Travel Allowance (LTA)||Rs.5,000|
Mr. Shiva will receive Rs.84,000 in tax exemption on HRA since it is the lowest value above. The remainder of his HRA will be taxed according to his income tax bracket.
|Actual HRA element of salary:||Rs.13,000 into 12 = Rs.1.56 lakh|
|50% of basic salary, as he stays in Mumbai:||50% into Rs.30,000 into 12 = Rs.1.80 lakh|
|Actual rent paid minus 10% in basic salary:||(Rs.10,000 into 12) – (10% into Rs.30,000 into 12) = Rs.1.2 lakh – Rs.36,000 = Rs.84,000|