Income Tax Section 10(13A)-Exemption of House Rent Allowance (HRA)

Income Tax Section 10(13A) Exemption of House Rent Allowance (HRA) . While calculating Income Tax, Most of us have some doubts on calculation of HRA (House Rent Allowance). Income Tax Dept has mentioned so many times on wrong calculation of HRA by employees while submitting the returns. Hence let us discuss the Calculation of House Rent Allowance Exemption in Income Tax as per Income Tax Act 1961, Section 10(13A), Read with Rule 2A of Income Tax Rules 1962.

HRA Exemption Rule as per Income Tax Act Section 10(13A)

The Words mentioned in the Income Tax Act 2013-14 as follows:
       Under section 10(13A) of the Act, any special allowance specifically granted to an assessee by his employer to meet expenditure incurred on payment of rent (by whatever name called) in respect of residential accommodation occupied by the assessee is exempt from Income-tax to the extent as may be prescribed, having regard to the area or place in which such accommodation is situated and other relevant considerations. According to Rule 2A of the Rules, the quantum of exemption allowable on account of grant of special allowance to meet expenditure on payment of rent shall be the least of the following:
  1. (a) The actual amount of such allowance received by the assessee in respect of the relevant period i. e. the period during which the accommodation was occupied by the assesse during the financial year; or
  2. (b) The actual expenditure incurred in payment of rent in excess of 1/10 of the salary due for the relevant period; or
  3. (i) Where such accommodation is situated in Bombay, Calcutta, Delhi or Madras, 50% of the salary due to the employee for the relevant period; or (ii) Where such accommodation is situated in any other places, 40% of the salary due to the employee for the relevant period,
For this purpose, "Salary" includes dearness allowance, if the terms of employment so provide, but excludes all other allowances and perquisites.
      It has to be noted that only the expenditure actually incurred on payment of rent in respect of residential accommodation occupied by the assessee subject to the limits laid down in Rule 2A, qualifies for exemption from income-tax. Thus, house rent allowance granted to an employee who is residing in a house/flat owned by him is not exempt from income-tax.
      The disbursing authorities should satisfy themselves in this regard by insisting on production of evidence of actual payment of rent before excluding the House Rent Allowance or any portion thereof from the total income of the employee.
       Though incurring actual expenditure on payment of rent is a pre-requisite for claiming deduction under section 10(13A), it has been decided as an administrative measure that salaried employees drawing house rent allowance upto Rs.3000/- per month will be exempted from production of rent receipt. It may, however, be noted that this concession is only for the purpose of tax-deduction at source, and, in the regular assessment of the employee, the Assessing Officer will be free to make such enquiry as he deems fit for the purpose of satisfying himself that the employee has incurred actual expenditure on payment of rent.
       Further if annual rent paid by the employee exceeds Rs 1,00,000 per annum, it is mandatory for the employee to report PAN of the landlord to the employer. In case the landlord does not have a PAN, a declaration to this effect from the landlord along with the name and address of the landlord should be filed by the employee.

Clarification by Addl Commissioner of IT, Hyd, as per CIT-14/TDS-State Govt/2012-13 Dated 14.2.13
  • HRA granted to an employee who is residing in his own house/flat owned by self is not exempt from income-tax. 
  • Salaried employees paying rent upto Rs.3000 per month will be exempted from production of rent receipt.

Calculation of HRA Exemption:

From the above Rules it is clear that For Calculation of HRA Exemption we should take the LEAST of the following Three:
1.Actual Amount of HRA Received
2.Actual Rent Paid Minus (-) 10% of Basic Salary (Here Basic Salary means Basic Pay + DA)
3.40% of Basic Salary (50% of Basic Salary in Metro Cities).
The Least of the above three will be taken House Rent Allowance Exemption.

Illustrative calculation of House Rent Allowance U/s 10 (13A)in respect of residential accommodation situated in Delhi in case of an employee below the age of 60 years (With valid PAN furnished to employer).

Particulars as follows:
1 Salary =2,50,000
2 Dearness Allowance =1,00,000
3 House Rent Allowance =1,40,000
4 House rent paid =1,44,000

Now Calculation of HRA Exemption as follows:
Salary + Dearness Allowance + House Rent Allowance= (2,50,000+1,00,000+1,40,000) = 4,90,000
Total Salary Income = 4,90,000

Less: House Rent allowance exempt U/s 10(13A):
Least of:
  • (a). Actual amount of HRA received= 1,40,000
  • (b). Actual Rent paid minus 10% of salary (including D.A) = (1,44,000-35,000) = 1,09,000
  • (c). 50% of Salary (Basic+ DA) = 1,75,000.
Least of the above Three is 1,09,000 Hence it will be taken for HRA Exemption
Gross Total Income = 4,90,000-1,09,000  3,81,000.

11 comments:

  1. If any Mistakes or suggestions You want to give, You can post your comments Here Admin

    ReplyDelete
    Replies
    1. Hi Zakir gaaru. Where does the component Medical allowance(1250Rs/Month) fall in the salary structure.?

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    2. Is room owner PAN required to avail this exemption?

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  2. If my gross salary is above 5 lakh and my house rent allowance is 24000 can i get hra exemption

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  3. Nice Article but if any body need more information on HRA Exemption can refer the below link
    http://www.studycafe.in/2014/02/house-rent-exemption-under-section.html

    ReplyDelete
  4. whether the the House Maintenance is considerd in HRA or Not?

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  5. Hi I have a doubt. I am orking in a company for nine months. I paid house rent of 10k for 9 months each. As the total amount paid as rent is less than 1lakh do I need to submit PAN number?

    ReplyDelete
    Replies
    1. yes, if amount paid as rent is in excess of Rs8333 per month, furnishing PAN of landlord is must.

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    2. I stay in a rented apartment (NO company accommodation) and pay a rent of Rs.18000/month. My HRA is Rs.8000/month. I plan to apply for HRA exemption while filing returns for YR2013-14. What is House Rent Recovery and is it applicable in my case?

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  6. Very good explanation. Thank you :)

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  7. Dear Sir,
    I had not given rent receipt to the employer. hence it is not mention (not exempted) in form 16. Now, while filing ITR can I take HRA exemption ?

    ReplyDelete