Deduction in respect of House Rent Allowance under Income-tax [Sec10(13A)]
Deduction in respect of House Rent Allowance (HRA) is allowed to employees for HRA granted to them by their employers to meet expenditure incurred on payment of rent in respect of residential accommodation occupied by the assessee, to the extend calculated in rule 2A.
Under rule 2A the amount which shall be excluded for the total income shall be the least of the following:
- The amount actually received by the assessee in the relevant period,
- The amount of rent paid in excess of 10% of the salary,
- in case the accommodation is situated in Bombay, Calcutta, Delhi and Madras, 50% of the salary and 40% of the salary in other places.
Thus if rent paid is less then 10% of salary no HRA deduction will be available. Salary means basic salary and dearness allowances. The employee must not own a house in place where he has rented accommodation.
example: Mr. Amit is residing in Pune. His Basic Salary and DA is Rs. 1,00,000/- p.a. He stays in rented home and pays rent Rs.4,500/- p.m. He gets HRA of Rs.1,000/- p.m. form his employer. HRA allowable will be least of i) Rs12,000/- i.e. HRA received @ Rs.1,000/- p.m. ii) Rs.44,000/-, being House Rent paid Rs.54,000/-(4500*12) in excess of 10% of Salary i.e. Rs10,000/- (Rs.1,00,000*10%), iii) 40% of salary for accommodation situated in Pune is Rs.40,000/-. So entire amount of HRA will be allowed as exemption from Total Income. If HRA received is Rs. 500/- p.m. then exemption will be nil as value calculated under condition (ii) will be nil. If HRA received is Rs.5,000/- p.m. i.e. Rs.60,000/- p.a. then exemption will be restricted to Rs.40,000/-.
