How Much HRA can be tax exempted?
HRA can be fixed or can be derived through a special agreement between the employee and the employer.
As the name suggests, the House Rent Allowance is given to an employee when he or she lives on rented residential premises, and is only provided when the employee stays at a residence that he or she does not own.
The Income Tax Act Section 10-13A provides for HRA exemption of tax. The deduction will be the lowest amongst:
1. The House Rent Allowances are given by the employer.
2. 50% of the employee's basic salary is eligible for HRA tax exemption if he or she lives in any of the Metro cities of India. In case the employee lives in any other city then 40% of the basic salary can be HRA exempted.
3. The actual rent that is paid by the employee for the residence each month, minus 10 % of his/her basic salary.
When the Rent Amount Exceeds Rs 1 Lakh
In case the rent paid towards house rent is more than Rs 1 Lakh, the individual can claim HRA tax exemptions towards it.
He or she will have to furnish the PAN details of the property owner, along with the rent receipts.
Example:
Basic Salary 2,40,000
1.HRA by employer 1,80,000(Annual)
2. Let's employees staying in a metro city, so HRA =50%*2,40,000 =1,20,000
Rent/Month = 12,000
Rent =12000*12 = 1,44,000(Annualy)
3. Actual Rent paid - 10% basic =1,44,000 - 10%*2,40,000=1,20,000
The lesser amount between 3 is 1,20,000 and this amount will be tax exempted in HRA Section.
