House Rent Allowance (HRA) Exemption Under section 10(13 A) of the Income Tax Act
House Rent allowance (HRA) granted to an assessee by his employer to meet expenditure incurred on payment of rent in respect of residential accommodation occupied by the assessee is exempt from Income-tax to the extent as may be prescribed. According to Rule 2 A of the Rules, the quantum of exemption allowable to meet expenditure on payment of rent shall be the least of the following:
(a) The actual amount of such allowance received by the assessee or
(b) The actual expenditure incurred in payment of rent in excess of 10% of the salary due for the relevant period; or
(c) Where such accommodation is situated in Bombay, Calcutta, Delhi or Madras, 50% of the salary for the relevant period; or where such accommodation is situated in any other places, 40% of the salary for the relevant period,
While calculating the exemption, the relevance of Metro is with respect to the place of residence and not the place of work. Hence, if the employee works in Metro and lives in a Non-metro location, only 40% of the salary shall be considered for calculation of the exempt House Rent Allowance.
Salary= Basic + DA (if part of retirement benefit) + Turnover based Commission.
House rent allowance granted to an employee who is residing in a house/flat owned by him is not exempt from income-tax.
Salaried employees drawing House Rent Allowance up to Rs.3,000/- pm will be exempted from production of rent receipt to their employers. However, the Assessing Officer will be free to make such enquiry as he deems fit to ensure that the employee has incurred actual expenditure on payment of rent.
If annual rent paid by the employee exceeds Rs 1,00,000 pa, it is mandatory to report PAN of the landlord to the employer. In case, the landlord does not have a PAN, a declaration to this effect from the landlord along with the name and address of the landlord should be filed by the employee.
If there is a change in the rent paid / HRA received / Salary, then HRA exemption has to be calculated on a monthly basis and if not, the same can be calculated as a whole annually.