Taxability of Housing Rent Allowance (HRA) in India.

Housing Rent Allowance (HRA) is a common component of salary structures in India, which is given by employers to their employees to help them meet their housing costs. HRA is a part of the total salary of the employee and is exempt from tax up to a certain limit, subject to certain conditions.

Taxability of HRA

The taxability of HRA depends on the amount received by the employee, the rent paid by the employee, and the location of the rented property.

If an employee lives in a rented accommodation and receives HRA from their employer, then the HRA is taxable under the head of 'Income from Salaries'. However, a certain portion of the HRA is exempt from tax, subject to certain conditions.

Calculation of HRA Exemption

The exemption for HRA is calculated as the minimum of the following three amounts:

• The actual amount of HRA received by the employee

• 50% of the employee's salary if they live in a metro city (i.e., Mumbai, Delhi, Chennai and Calcutta) or 40% of the salary if they live in a non-metro city.

• The actual rent paid by the employee minus 10% of the salary

The salary for this purpose includes basic salary, dearness allowance (if it is part of the salary), and commission (if it is a fixed percentage of sales).

For example, if an employee receives an HRA of Rs. 20,000 per month and their actual rent paid is Rs. 15,000 per month, and their salary is Rs. 1,00,000 per month, the calculation of the HRA exemption would be as follows:

• The actual amount of HRA received by the employee is Rs. 20,000.

• 50% of the employee's salary is Rs. 50,000 (since the employee lives in a metro city).

• The actual rent paid by the employee minus 10% of the salary is Rs. 5,000.

Therefore, the lowest of the above three amounts is Rs. 5,000. Hence, Rs. 5,000 is the exempted portion of the HRA, and the balance of Rs. 15,000 (i.e., Rs. 20,000 - Rs. 5,000) is taxable.

Documents required for claiming HRA exemption

To claim exemption for HRA, the employee must submit the following documents to the employer:

• Rent receipt for the rented property, which should contain the name of the landlord, the amount of rent paid, and the period for which the rent is paid.

• A copy of the rent agreement with the landlord, if the rent paid is more than Rs. 1 lakh per year.

• The PAN of the landlord, if the rent paid is more than Rs. 1 lakh per year.

• If the employee does not submit these documents, the employer may not grant the exemption.

Conclusion In summary, HRA is a common component of the salary structure in India, which is given by employers to their employees to help them meet their housing costs. HRA is taxable, but a certain portion of it is exempt from tax, subject to certain conditions. To claim exemption for HRA, the employee must submit certain documents to the employer. It's important for employees to understand the taxability of HRA and the conditions for claiming an exemption to ensure that they do not end up paying more tax than necessary.