Every employer gives some allowances to his employees along with his salary. One of such allowances is HRA.
Under section 10(13A), an employee who is in receipt of HRA allowance can claim exemption, if he does not live in his own house and pays rent in excess of 10% of salary for his residential purposes.
Cases where exemption is not available?
• When the assessee stays in his own house.
• When the assessee does not pay any rent, or incur any expenditure towards rent; or
• When the rent paid is less than 10% of salary.
Computation if exempted HRA?
Under section 10(13A) of the Income Tax Act, 1961; Least of the following amounts is exempted from the amount received as HRA.
1. Actual amount received as HRA.
2. 40% of the salary receive. (50% in case persons living in Chennai, Mumbai, Kolkata and Delhi)
3. Rent paid less 10% of salary for the relevant period.
Salary means: -
For the purposes of this section salary refers to;
Commission forming part of salary as a fixed percentage.
If employee received both RFA & HRA?
• The assessee employee was living in a house provided by the employer and he is reimbursing the full rent to the employer.
• Employee argues that he is not getting any RFA, since he is paying the entire cost to the employer.
• He further claimed that rent paid to the employer as deduction while calculating the taxable HRA.
• The court held that it amounts to double benefit and hence HRA benefit cannot be given and hence held as full HRA taxable.
Condition to be satisfied for claiming HRA exemption?
Exemption Under section 10(13A) can be claimed only if the following conditions are satisfied;
• He had received special allowance from his employer to compensate him for expenditure incurred on payment of rent of residential accommodation occupied by him;
• He had occupied an accommodation which is not owned by him;
• He had actually made the payment of rent to the owner of the house.
It is the responsibility of the AO to prove that the above conditions are not satisfied to deny the HRA claim of the employee.
Can both HRA and home loan can be claimed at the same time?
Assessee can claim both HRA exemption and deduction in respect of the interest and principal repayment on home loan simultaneously.
Employees who does not receive HRA?
Assesses who does not receive HRA and lives in rented accommodation can claim deduction under section 80GG.
Some other points to be noted down:
1. For the purposes of determination of HRA exemption, salary shall be determined always on DUE BASIS.
2. HRA exemption can be claimed only on submission of the following documents to employer.
• Rental receipts.
• Rental agreement.
3. Now it is made compulsory to submit the PAN card of the landlord if employee pays more than Rs. 1,00,000 as rent annually or more than Rs. 15,000 per month.