HRA OR HOUSE RENT ALLOWANCE

 


HRA stands for House Rent Allowance which is part of salary component. Now that you are aware of the full form, but are you aware what is the advantage of HRA? How HRA can be utilized in claiming tax exemption to lower as well as save tax?

House Rent Allowance is an amount paid by the employer towards an employee’s rental accommodation.

House Rent Allowance (HRA) is a part of an employee's salary that cab be subject to partial or full tax deductions. The HRA calculation depends on various factors.

Self-employed individuals can also avail of deductions and tax exemptions towards House Rent Allowance (HRA). They can claim these benefits by utilizing Section 80 GG.

HRA in detail​: So, let’s understand more about House Rent Allowance.

The HRA is a part of taxable income from salaries. While filing Income-tax return, the same should be shown under the head income from salary. However, exemption is available under section 10(13A) The exemption is based on certain set of conditions.

​Section (13A) says that, any special allowance specifically granted to an assessee by his employer to meet expenditure actually incurred on payment of rent in respect of residential accommodation occupied by the assessee, will depend on the area or place in which such accommodation is situated and other relevant considerations.

Please note: this clause will not apply in a case where—

(a) the residential accommodation occupied by the assessee is owned by him; or

(b) the assessee has not actually incurred expenditure on payment of rent in respect of the residential accommodation occupied by him;

Exemption for House rent allow​ance is regulated by Rule 2A. The least of the following is allowed exemption from tax:

Rule 2A. The amount which is not to be included in the total income of an assessee in respect of the special allowance referred to in clause (13A) of section 10 shall be—

(a) the actual amount of such allowance received by the assessee in respect of the relevant period; or

(b) the amount by which the expenditure actually incurred by the assessee in payment of rent in respect of residential accommodation occupied by him exceeds one-tenth of the amount of salary due to the assessee in respect of the relevant period; or

[(c) an amount equal to—

(i) where such accommodation is situated at Bombay, Calcutta, Delhi or Madras, one-half of the amount of salary due to the assessee in respect of the relevant period; and

(ii) where such accommodation is situated at any other place, two-fifth of the amount of salary due to the assessee in respect of the relevant period,]

Whichever is the least.

In this rule—

(i) “salary” shall have the meaning assigned to it in clause (h) of rule 2 of Part A of the Fourth Schedule;

(ii) “relevant period” means the period during which the said accommodation was occupied by the assessee during the previous year.]

Conclusion:

This new financial year, take help of your financial advisor to understand about relevance of HRA to save more tax.

HAPPY SAVINGS!

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