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How will you calculate House Rent Allowance (HRA)?

Avatar 37a3bd7bc7328f0ead2c0f6f635dddf60615e676e6b4ddf964144012e529de45 preetham asked over 2 years ago

Hi Friends, I am Preetham. I am preparing for CA exam. I want to know, How will you calculate House Rent Allowance (HRA)?

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5 Answers
Avatar 37a3bd7bc7328f0ead2c0f6f635dddf60615e676e6b4ddf964144012e529de45 narahari answered about 2 years ago

1. Actual house rent allowance received from your employer 2. Actual house rent paid by you minus 10% of your basic salary 3. 50% of your basic salary if you live in a metro or 40% of your basic salary if you live in a non-metro

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Avatar 37a3bd7bc7328f0ead2c0f6f635dddf60615e676e6b4ddf964144012e529de45 veeru answered over 2 years ago

The rented premises must not be owned by him. In case one stays in an own house, nothing is deductible and the entire amount of HRA received is subject to tax. As long as the rented house is not owned by the assessee, the exemption of HRA will be available up to the the minimum of the following three options: 1. Actual house rent allowance received from your employer 2. Actual house rent paid by you minus 10% of your basic salary 3. 50% of your basic salary if you live in a metro or 40% of your basic salary if you live in a non-metro This minimum of above is allowed as income tax exemption on house rent allowance.

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Open uri20170510 32134 1c996lj?1494421732 Anil answered over 2 years ago

Employees generally receive a house rent allowance (HRA) from their employers. This is a part of the salary package, in accordance with the terms and conditions of employment. HRA is given to meet the cost of a rented house taken by the employee for his stay.The Income Tax Act allows for deduction in respect of the HRA paid to employees. The exemption on HRA is covered under Section 10(13A) of the Income Tax Act and Rule 2A of the Income Tax Rules. It is to be noted that the entire HRA is not deductible. HRA is an allowance and is subject to income tax. An employee can claim exemption on his HRA under the Income Tax Act if he stays in a rented house and is in receipt of HRA from his employer. In order to claim the deduction, an employee must actually pay rent for the house which he occupies. The rented premises must not be owned by him. In case one stays in an own house, nothing is deductible and the entire amount of HRA received is subject to tax. As long as the rented house is not owned by the assessee, the exemption of HRA will be available up to the the minimum of the following three options: Actual house rent allowance received from your employer Actual house rent paid by you minus 10% of your basic salary 50% of your basic salary if you live in a metro or 40% of your basic salary if you live in a non-metro This minimum of above is allowed as income tax exemption on house rent allowance. Salary here means basic salary which includes dearness allowance if the terms of employment provide for it, and commission based on a fixed percentage of turnover achieved by the employee. The deduction will be available only for the period during which the rented house is occupied by the employee and not for any period after that. Meaning of Salary for calculation the exemption of HRA Salary means (Basic + D.A + Commission based on fixed percentage on turnover). Salary is to be taken on due basis in respect of the period during which the period accommodation is occupied by the employee in the previous year. Examples for calculation of exemption/deduction of HRA X has received following amount during the previous year. Basic Salary – Rs. (5000*12) – Rs. 60,000/- Dearness Allowance (D.A) – Rs. (1000*12) – Rs. 12000/- House Rent Allowance (H.R.A.) – Rs. (2000*12) – Rs. 24000/- Actual Rent Paid – Rs.(2000*12) – Rs. 24000/- Calculation The minimum of the following amount shall be exempt Actual HRA received (2000*12) – Rs. 24000/- Rent Paid in excess of 10% of salary ( 24000-7200) – Rs. 16800 40% of Salary – Rs. 28800/- Therefore, Rs. 16800 shall be exempt and the balance Rs. 7200 shall be included in gross salary. Frequently Asked Questions:- How is HRA accounted for in the case of a salaried individual and a self-employed professional? HRA (house rent allowance) is accounted for in the case of salaried people under Section 10 (13A) of Income Tax Act, 1961, in accordance with rule 2A of Income Tax Rules. On the other hand, self-employed professionals cannot be considered for HRA exemption under this act, as they do not earn a salary. However, they can claim benefits on the house rent expenses incurred under section 80GG, which resembles section to 10(13A) but is subject to certain conditions. What are the dependent factors in calculating HRA for the salaried individual? When you are calculating HRA for tax exemption, you take into consideration four aspects which includes salary, HRA received, the actual rent paid and where you reside, i.e., if it is a metro or non-metro. If these aspects remain constant through the year, then tax exemption is calculated as a whole annually, if this is subject to change, as in a rent hike, pay hike or shift in residence etc., then it is calculated on a monthly basis. It is usually rare for all the values to remain constant in a financial year. The place of residence is significant in HRA calculation as for a metro the tax exemption for HRA is 50% of the basic salary while for non-metros it is 40% of the basic salary. This holds true especially when you work at a metro and reside at a non-metro. In this case, your city of residence only will be considered for calculating your HRA. Can I pay rent to my parents or spouse to avail HRA benefits? You can pay rent to your parents, however, they need to pay tax on the same or account the same in calculating their taxable income. On the other hand, you cannot pay rent to your spouse. In view of the relationship when you take up residence together, you are expected to do so and hence such a transaction does not bear merit under tax laws. Sham transactions can only spell trouble under Employees generally receive a house rent allowance (HRA) from their employers. This is a part of the salary package, in accordance with the terms and conditions of employment. HRA is given to meet the cost of a rented house taken by the employee for his stay.The Income Tax Act allows for deduction in respect of the HRA paid to employees. The exemption on HRA is covered under Section 10(13A) of the Income Tax Act and Rule 2A of the Income Tax Rules. It is to be noted that the entire HRA is not deductible. HRA is an allowance and is subject to income tax. An employee can claim exemption on his HRA under the Income Tax Act if he stays in a rented house and is in receipt of HRA from his employer. In order to claim the deduction, an employee must actually pay rent for the house which he occupies. The rented premises must not be owned by him. In case one stays in an own house, nothing is deductible and the entire amount of HRA received is subject to tax. As long as the rented house is not owned by the assessee, the exemption of HRA will be available up to the the minimum of the following three options: Actual house rent allowance received from your employer Actual house rent paid by you minus 10% of your basic salary 50% of your basic salary if you live in a metro or 40% of your basic salary if you live in a non-metro This minimum of above is allowed as income tax exemption on house rent allowance. Salary here means basic salary which includes dearness allowance if the terms of employment provide for it, and commission based on a fixed percentage of turnover achieved by the employee. The deduction will be available only for the period during which the rented house is occupied by the employee and not for any period after that. Meaning of Salary for calculation the exemption of HRA Salary means (Basic + D.A + Commission based on fixed percentage on turnover). Salary is to be taken on due basis in respect of the period during which the period accommodation is occupied by the employee in the previous year. Examples for calculation of exemption/deduction of HRA X has received following amount during the previous year. Basic Salary – Rs. (5000*12) – Rs. 60,000/- Dearness Allowance (D.A) – Rs. (1000*12) – Rs. 12000/- House Rent Allowance (H.R.A.) – Rs. (2000*12) – Rs. 24000/- Actual Rent Paid – Rs.(2000*12) – Rs. 24000/- Calculation The minimum of the following amount shall be exempt Actual HRA received (2000*12) – Rs. 24000/- Rent Paid in excess of 10% of salary ( 24000-7200) – Rs. 16800 40% of Salary – Rs. 28800/- Therefore, Rs. 16800 shall be exempt and the balance Rs. 7200 shall be included in gross salary. Frequently Asked Questions:- How is HRA accounted for in the case of a salaried individual and a self-employed professional? HRA (house rent allowance) is accounted for in the case of salaried people under Section 10 (13A) of Income Tax Act, 1961, in accordance with rule 2A of Income Tax Rules. On the other hand, self-employed professionals cannot be considered for HRA exemption under this act, as they do not earn a salary. However, they can claim benefits on the house rent expenses incurred under section 80GG, which resembles section to 10(13A) but is subject to certain conditions. What are the dependent factors in calculating HRA for the salaried individual? When you are calculating HRA for tax exemption, you take into consideration four aspects which includes salary, HRA received, the actual rent paid and where you reside, i.e., if it is a metro or non-metro. If these aspects remain constant through the year, then tax exemption is calculated as a whole annually, if this is subject to change, as in a rent hike, pay hike or shift in residence etc., then it is calculated on a monthly basis. It is usually rare for all the values to remain constant in a financial year. The place of residence is significant in HRA calculation as for a metro the tax exemption for HRA is 50% of the basic salary while for non-metros it is 40% of the basic salary. This holds true especially when you work at a metro and reside at a non-metro. In this case, your city of residence only will be considered for calculating your HRA. Can I pay rent to my parents or spouse to avail HRA benefits? You can pay rent to your parents, however, they need to pay tax on the same or account the same in calculating their taxable income. On the other hand, you cannot pay rent to your spouse. In view of the relationship when you take up residence together, you are expected to do so and hence such a transaction does not bear merit under tax laws. Sham transactions can only spell trouble under

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Avatar 37a3bd7bc7328f0ead2c0f6f635dddf60615e676e6b4ddf964144012e529de45 CA Sandeep Bohra answered over 2 years ago

**House Rent Allowance (HRA)** -- **House Rent Allowance (HRA) means**-Employees generally receive a house rent allowance (HRA) from their employers. This is a part of the salary package, in accordance with the terms and conditions of employment. HRA is given to meet the cost of a rented house taken by the employee for his stay.The Income Tax Act allows for deduction in respect of the HRA paid to employees. The exemption on HRA is covered under Section 10(13A) of the Income Tax Act and Rule 2A of the Income Tax Rules. It is to be noted that the entire HRA is not deductible. HRA is an allowance and is subject to income tax. **As per income Tax act, for calculation House rent allowance least of the following is available as deduction** : 1.Actual HRA received 2.50% / 40%(metro / non-metro) of basic ‘salary’ 3.Rent paid minus 10% of ‘salary’. Basic Salary for this purpose is basic+ DA forming part+ commission on sale on fixed rate. --Cities Like, Delhi, Mumbai, Chennai and Kolkata constitutes Metro. All cities other than these are non-Metro. So if you resides in cites like Gurgaon, Faridabad, Bangalore, Hyderabad, etc it would constitutes as Non metro and only 40% deduction will be allowed. --If actual rent paid is lower than 10% of your basic salary you receive no exemption. The other key point is that you cannot claim any exemption under this section if you live in your own home or if you are not paying rent to anyone.

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Avatar 37a3bd7bc7328f0ead2c0f6f635dddf60615e676e6b4ddf964144012e529de45 Chirag answered over 2 years ago

An employee can claim exemption on his HRA under the Income Tax Act if he stays in a rented house and is in receipt of HRA from his employer. In order to claim the deduction, an employee must actually pay rent for the house which he occupies. The rented premises must not be owned by him. In case one stays in an own house, nothing is deductible and the entire amount of HRA received is subject to tax. As long as the rented house is not owned by the assessee, the exemption of HRA will be available up to the the minimum of the following three options: 1. Actual house rent allowance received from your employer 2. Actual house rent paid by you minus 10% of your basic salary 3. 50% of your basic salary if you live in a metro or 40% of your basic salary if you live in a non-metro This minimum of above is allowed as income tax exemption on house rent allowance. Salary here means basic salary which includes dearness allowance if the terms of employment provide for it, and commission based on a fixed percentage of turnover achieved by the employee. The deduction will be available only for the period during which the rented house is occupied by the employee and not for any period after that. Meaning of Salary for calculation the exemption of HRA Salary means (Basic + D.A + Commission based on fixed percentage on turnover). Salary is to be taken on due basis in respect of the period during which the period accommodation is occupied by the employee in the previous year.

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