House Rent Allowance

What is House Rent Allowance?

House Rent Allowance (HRA) is an allowance given to Salaried individuals for expenses related to rented accommodation. It can be partially or completely exempt from tax.

What if I’m paying rent but I don’t receive any HRA?

Self-employed individuals and salaried employees, who don’t receive any HRA, can claim the benefits of the said component under the section 80GG of Income Tax Act.

How is the tax deduction from HRA calculated?

The least of the following is exempt from tax:

• 50% of {Basic salary + Dearness Allowance (DA)} where the house is in Mumbai, Calcutta, Delhi or Madras
• 40% of {Basic salary + DA} where the house is located in any other city
• Rent paid less 10% of {Basic salary + DA}
• Actual HRA received

Let’s take the example of Simran:

Simran, who resides in Delhi, gets Rs. 5,50,000 as basic salary and Rs.50,000 as Dearness Allowance (DA). She receives Rs. 1,00,000 as HRA and the rent paid by her is Rs. 1,10,000. Taxable HRA will be computed as follows.

Out of Rs. 1,00,000 received as HRA, the least of the following is exempt from tax:

• Rs. 3,00,000 being 50% of {Basic salary + DA}
• Rs. 50,000 being rent paid less 10% of {Basic salary + DA}
• Rs. 1,00,000 being actual HRA received

In this case, Rs. 50,000 will be exempt from tax.