What Is House Rent Allowance?

House Rent Allowance (HRA) is a form of allowance that is provided by an employer to their employees to meet their housing Rent. This allowance is given to employees who are living in rented accommodation and is meant to cover their rental expenses. It is one of the most common allowances that employees receive as a part of their salary package.

Is House Rent Allowance taxable as a salary?

One of the most significant benefits of HRA is that it is exempted under Section 10(13A) of the Income Tax Act. This means that the amount of HRA that an employee receives from their employer can be claimed as a tax deduction, subject to certain conditions.

How much amount of HRA would be taxable or exempted?

The amount of tax exemption that an employee can claim on HRA is the minimum of the following three amounts:

1. Actual HRA received from the employer
2. Rent paid by the employee minus 10% of the basic salary
3. 50% of the basic salary if the rented accommodation is in a metro city (i.e., cities with a population of more than 10 lakhs) or 40% of the basic salary for non-metro cities.

What to do for claiming HRA exemption?

To claim the tax exemption on HRA, the employee must submit proof of rent paid, such as rent receipts or a rental agreement, to the employer. The exemption is only available if the employee is paying rent for a residential accommodation and not for any commercial premises.

Conclusion

In conclusion, HRA is an important component of an employee’s salary package, especially for those who are living in rented accommodation. It not only helps employees meet their housing expenses but also provides tax benefits. Therefore, it is essential for employees to understand the provisions of HRA and its tax implications.