06 April 2019

HRA Computation

House rent allowance is a very common allowance that often provided by employer to his/her employees'. Usually it is calculated on Basic or Basic & DA, or on flat rate for some cases. Although it is a taxable allowance by default but HRA can be fully or partly exempted from tax as the case may be. To compute it's taxability, you should follow the computation method provided under section 10(13A) of Income tax act, 1961.

Computation of HRA under section 10(13A)

At first determine the actual amount of HRA provided by employer, then reduce it by deducting the least of following 3 conditions:

Least of the followings:
  1. 50% of salary (for metropolitan cities) or 40% of salary (for any other cities)
  2. Actual HRA received
  3. Actual rent paid over 10% of salary.
Now if the second point become the least, then your HRA income will be completely exempted from tax, otherwise it will be partly exempted.

Points to note:

  • This exemption can be availed by individual and HUF (Hindu Undivided Family)
  • If you actually do not pay any house rent, but got HRA income from employer as an allowance, then the whole amount will be completely taxable and no exemption will be applicable.
  • To compute taxable HRA, the term salary means the accumulation of Basic, DA & Commission based on fixed percentage (of applicable).
  • Once you claim the exemption. You should be ready with Rent receipt copy, Rent agreement & PAN number of the landlord.
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