Income Tax for HRA Taxability and calculation (Section 10(13A) and Rule 2A)

House Rent Allowance (HRA) Taxability & calculation (Section 10(13A) and Rule 2A)

Income Tax Rules about House Rent Allowance (HRA) Taxability & calculation (Section 10(13A) and Rule 2A)
Under section 10(13A) of the Income-tax Act, 1961, 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 Income-tax Rules, 1962, the quantum of exemption allowable on account of grant of special allowance to meet expenditure on payment of rent shall be:

(a)  The actual amount of such allowance received by an employer in respect of the relevant period;

or

(b)  The actual expenditure incurred in payment of rent in excess of 1/10 of the salary due for the relevant period; or

(c)  Where such accommodation is situated in Bombay, Calcutta, Delhi or Madras, 50 per cent of the salary due to the employee for the relevant period; or

(d)  Where such accommodation is situated in any other place, 40 per cent of the salary due to the employee for the relevant period, whichever is the least.

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IT Exemption on HRA – PAN of House Owner Rent paid in excess of Rs. 1 lakh

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 up to Rs. 3,000 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.

EXAMPLE-4
For Assessment Year 2010-11
Illustrative calculation of House Rent Allowance u/s 10(13A)in respect of residential accommodation situated in Delhi in case of a female employee (With valid PAN furnished to employer).
Particulars:

1. Salary Rs. 2,50,000
2. Dearness Allowance Rs. 1,00,000
3. House Rent Allowance Rs. 1,40,000
4. House rent paid Rs. 1,44,000
5. General Provident Fund Rs. 36,000
6. Life Insurance Premium Rs. 4,000
7. Subscription to Unit-Linked insurance Plan Rs. 50,000
Computation of total income and tax payable thereon
1.

2.

Salary + D.A. + House Rent Allowance (2,50,000+1,00,000+1,40,000+4,90,000) Total Salary income Rs. 4,90,000

Rs. 4,90,000

3. LessHouse Rent allowance exempt u/s 10(13A):
Least of:

a. Actual amount of HRA received=1,40,000
b. Expenditure of rent in excess of 10 per cent ofsalary (including D.A. presuming that D.A.
is taken for retirement benefit) (1,44,000-35,000) =1,09,000

c50 per cent of Salary (Basic+ DA) = Rs. 1,75,000 Rs. 1,09,000
Gross Total Income: Rs. 3,81,000
LessDeduction u/s 80C: 36,000
GPF 4,000
LIC 50,000
Subscription to Unit Linked Insurance
Plan
90,000
Total: Rs. 90,000
Total Income: Rs.2,91,000
Tax payable on total income Rs. 10,100
Add: Education Cess @ 2% Rs. 202
Secondary and Higher Education Cess @ 1% Rs. 101
Total Income-tax Payable Rs. 10,403
Rounded off to Rs. 10,400

Click to know more about Changes relevant to Salaried Employees in Budget 2015

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