HRA tax exemption under section 10 (13A)

Updated on February 29th 2016: Majority of the salaried people get an allowance for taking care of the rent that they pay for their home. This is called House Rent Allowance, or HRA.

The Indian Income Tax Laws considers housing as a basic necessity, and hence gives sympathetic treatment to the HRA Allowance received by the employees, by way of giving some tax benefits under section 10 (13A) of Income Tax Act, Government of India.

For the financial year 2016-17 the limit of deduction of rent paid has been increased from Rs 24,000 per annum to Rs 60,000 to those who do not get HRA allowance and don’t own any house and live in rented accommodation.

The tax benefit available to the employee on the HRA received is treated as follows for computation of Income tax.

The minimum of the following is available as exemption from employee’s earning.

The actual HRA received from your employer

OR

The actual rent paid by you for the house, minus 10% of your salary (this includes basic + dearness allowance, if any)

OR

50% of your basic salary (if you live in a metro) or 40% of your basic salary (if you live in a non-metro)

Let us consider a hypothetical case or evaluate with an example.

Consider the Salary Components as follows:

Basic: Rs. 15,000,  Dear Allowance(DA) or other allowances Rs. 5,000 and HRA: Rs. 9,000

So a total salary of Rs 29,000

Let actual rent rent paid be: Rs. 10,000

You live in Mumbai (It is a Metro in Income Tax Computation. it is a Metro otherwise too!).

Now let us understand how the rule works.

1. The actual HRA received from employer = This Amount is Rs. 9,000

2. The actual rent paid for the house minus 10% of the salary (Excluding HRA Component)

This would be Rs. 10,000 – 10% of (Rs. 15,000 + Rs. 5,000) = Rs. 10,000 – Rs. 2,000 = Rs. 8,000

3. Fifty percent 50% of your basic salary

Since you live in a metro, this would be 50% of Rs. 15,000 = Rs. 7,500

The minimum amount out of 1, 2 and 3 is Rs. 7,500. Therefore, the amount of HRA exempt from tax is Rs. 7,500 per month.

The remaining HRA amount of Rs. 1,500 (Actual HRA received Rs. 9,000 Minus exempt HRA Rs. 7,500 = Rs. 1,500) would be added to your taxable income.

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