Calculation of House Rent Allowance (HRA) Exemption - income tax
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Allowance is a fixed monetary amount paid by the employer to the employee, Whether personal or for the performance of his duties. These allowances generally taxable unless a specific deduction/exemption is provided by law. So in this article we will discuss about House Rent Allowance broadly. So you can understand and calculate it very easily. Please read complete article including the notes given at the end of the article.
House Rent Allowance (HRA) is give by the employer to the employee to meet the expenses in connection with rent of the accommodation. HRA is exempt under section 10(13A) to the extent of the minimum of the following three amounts :
    1. Actual House Rent Allowance received by the employee
    2. Excees of rent paid for the accommodation occupied by him over 10 % of the salary.
    3. 50% of salary where the residential house is situated at Mumbai, Calcutta, Delhi or Chennai and 40% of the salary where the house is situated at any other place.
The minimum of the above three amounts shall be exempt from tax and the balance shall be taxable and thus included in gross salary of employee.
Meaning of Salary for calculation the exemption of HRA
  • Salary means (Basic + D.A + Commission based on fixed percentage on turnover).
  • Salary is to be taken on due basis in respect of the period during which the period accommodation is occupied by the employee in the previous year.
Calculation Monthly or Yearly?
The exemption in respect of HRA is based upon the following factors:
  1. Salary
  2. HRA received
  3. Place of Residence,
  4. Rent Paid,
HRA exemption should not be calculated on yearly basis, if there was any change in above factors during previous year.
Examples for calculation of exemption/deduction of HRA
X has received following amount during the previous year.
  1. Basic Salary – Rs. (5000*12) – Rs. 60,000/-
  2. Dearness Allowance (D.A) – Rs. (1000*12) – Rs. 12000/-
  3. House Rent Allowance (H.R.A.) – Rs. (2000*12) – Rs. 24000/-
  4. Actual Rent Paid – Rs.(2000*12) – Rs. 24000/-
Calculation
The minimum of the following amount shall be exempt
  • Actual HRA received (2000*12) – Rs. 24000/-
  • Rent Paid in excess of 10% of salary ( 24000-7200) – Rs. 16800
  • 40% of Salary – Rs. 28800/-
Therefore, Rs. 16800 shall be exempt and the balance Rs. 7200 shall be included in gross salary.
HRA Exemption:
HRA Exemption as Paying Guest
HRA exemption is qualified solely for house rent payment not for other amenities like eatables and other facilities. In the case of “Paying Guest”, you pay consolidated rent including other amenities. You must separate the portion of house rent only. You will enter only house rent payment excluding other facilities for calculation of house rent allowance exemption or taxable part.
For Example: If A pay Rs. 3000 P.M. as the paying guest including all the facilities like breakfast, dinner, etc. then A will separate the cost of that amenities. A will treat rs. 2000 as a rent and Rs. 1000 for other amenities. Now, A will calculate the HRAexemption by using only rs.2000, which is his rent portion.
Let’s find out the relevance part of income tax act for paying guest house rent allowance exemption.
Meaning: House Rent Allowance (HRA) is given by the employer to the employee to meet the expenses in connection with rent of the accommodation. HRA is exempt under section 10(13A) to the extent of the minimum of the following three amounts.
  • Actual House Rent Allowance received by the employee
  • Excees of rent paid for the accommodation occupied by him over 10 % of the salary.
  • 50% of salary where the residential house is situated at Mumbai, Calcutta, Delhi or Chennai and 40% of the salary where the house is situated at any other place.
For claiming HRA exemption, you should fall under following situation.
  • House Rent Allowance Received
  • House Rent Paid
So, the above conditions are satisfied in the case of paying guest also. So why you can not consider the exemption of HRA. However, you have to follow some rules and condition to get an exemption of HRA.
Deduction on House Rent under section 80GG
The common question arises in the mind of assesee received salary is “I am not receiving any house rent allowance (HRA) but I am paying house rent for Rs. 5,000 per month. Can I allowed for any deduction from my salary income?”
Yes, you can get deduction on house rent paid even you are not receiving any HRA u/s 80GG subject to some conditions. In this article we will discuss only about deduction under section 80GG. If you are receiving House Rent Allowance then see this article about “ Calculation of House Rent Allowance
Basically, Deduction under Sec. 80GG is available for persons who are not in receipt of house rent allowance, but have to pay rent for their accommodation in excess of 10 per cent of their total income.
The deduction for the rent paid by you for occupying an accommodation for your residense is allowed as a deduction from total income provided the following conditions are satisfied:
Conditions to get deduction on rent paid
  • You should be individual
  • You are not receiving any housre rent allowance from the employer (if receiving then see the article)
  • A residential accommodation is not owned at the place where you reside or perform the duties of your office or employment. Or by your spouse, your minor child and HUF of which you are a member
Quantum of deduction for rent paid
The deduction shall be the minimum of the following amounts:
  • Rs. 2000 per month
  • 25 percent of the Adjusted Total Income
  • The excess of actual rent paid over 10 per cent of Adjusted total Income
Adjusted Total Income for calculation of deduction u/s 80GG
Adjusted total income, for the purpose, means the gross total income as reduced by:
  • Long-term capital gains
  • All deduction u/s 80CCC to 80U excepting deduction u/s 80GG
  • Any income referred to in section 115A to 115D
Pin-up in your income tax tile for office record
The assessee must fill a declaration in Form No.10BA and pin-in your income tax file for future reference. It is a proof of showing that you have not your own residence accommodation on the place of your employment.
Download Form No. 10BA
Tax Provisions of Rent Arrears
In this article, we will discuss about the tax provisions of rent arrears received in current financial year of due from previous years. The majority of the tax payers are confused how it is taxable, In which Asstt. year arrears of rent is taxable, is there any interest payable on income tax for default of assessed income. Let’s discuss some of the important points regarding taxability of arrears of rent received.
The provisions of rent arrears described under section 25B of Income Tax act. The section 25B exclusively deals with assessing conditions of arrears of rent received in the current financial year.
Section 25B of Income Tax Act.
25B. Special provisions for arrears of rent received.

Where the assessee-
(a) is the owner of any property consisting of any building or land appurtenant thereto which has been let to a tenant; and
(b) has received any amount, by way of arrears of rent from such property, not charged to income-tax for any previous year, the amount so received, after deducting (a sum equal to thirty per cent of such amount), shall be deemed to be the income chargeable under the head “income from house property” and accordingly charged to income-tax as the income of that previous year in which such rent is received, whether the assessee is the owner of that property is that year or not.
This is a special provision for assessing arrears of rent when received. It lays down that where the owner of the property received any amount, by way of arrears of rent from such property, the amount so received, after deducting a sum equal to one-fourth of such amount for repairs of, and collection of rent from, the property, shall be deemed to be the income chargeable under the head ‘income from house property’ as the income of the previous year in which such rent is received.
In simple words we can say, any amount received as arrears of rnet from a property consisting of any building or land appurtenant thereto which has not been charged toincome tax in any previous year shall be taxable in the previous year in which the same is received.
Let’s take one example
Mr X have received arrears of rent of which he had been let out. The tenant had not paid the rent for a period of almot 2 years. The above amount received in Dec.2009. Now find out the taxability of rent arrears and in which it will be assessed.
Solution:
  • The arrears of rent would be taxable in the Asst. Year 2010-11 as rent received by x on Dec. 2009. See Assessment year, and Previous year.
  • However, X is entitled to get statutory deduction of 30 per cent.
  • The arrears of rent received would be taxable as income from house property.
Capital Gain Exemption u/s 54: Capital Gains from Transfer of a Residential House
How to minimize Capital Gain Part – 1: Capital Gain from Transfer of a Residential House-Exemption of Capital Gains u/s 54
Introduction
Any long-term capital gains arising on the transfer of a residential house (including self-occupied house) will be exempt from tax if,
Conditions
1) If the assessee has within a period of one year before or two years after the date of such transfer purchased, or within a period of three years constructed, a residential house.
2)The assessee must not transfer the new house, within a period of three years from the date of its purchase or construction, as the case may be. Otherwise the exemption allowed under this section
shall be reduced from the cost of the new house, in computing the capital gains arising therefrom.
3)If the whole or any part of the capital gain cannot be so utilised for acquisition a residential
house before filling the return, the same should be deposited in Capital Gains Accounts Scheme, 1988 in order to claim exemption, beforethe due date for furnishing the return.
How much amount will be exempt?
The amount of exemption available is equal to the amount so utilised or the amount of capital gain, whichever is less.
If the amount of capital gain is appropriated towards purchase of a plot and also towards construction of a residential house thereon, the aggregate cost should be considered for determining the quantum of deduction, provided that the acquisition of plot and also the construction thereon, are completed within the specified period as aforesaid.
In simple words, capital gains shall be exempt to the extent it is invested in the purchase and/or construction of another house.
Capital Gain Exemption u/s 54: Capital Gains from Transfer of a Residential House
How to minimize Capital Gain Part – 1: Capital Gain from Transfer of a Residential House-Exemption of Capital Gains u/s 54
Introduction
Any long-term capital gains arising on the transfer of a residential house (including self-occupied house) will be exempt from tax if,
Conditions
1) If the assessee has within a period of one year before or two years after the date of such transfer purchased, or within a period of three years constructed, a residential house.
2)The assessee must not transfer the new house, within a period of three years from the date of its purchase or construction, as the case may be. Otherwise the exemption allowed under this section
shall be reduced from the cost of the new house, in computing the capital gains arising therefrom.
3)If the whole or any part of the capital gain cannot be so utilised for acquisition a residential
house before filling the return, the same should be deposited in Capital Gains Accounts Scheme, 1988 in order to claim exemption, beforethe due date for furnishing the return.
How much amount will be exempt?
The amount of exemption available is equal to the amount so utilised or the amount of capital gain, whichever is less.
If the amount of capital gain is appropriated towards purchase of a plot and also towards construction of a residential house thereon, the aggregate cost should be considered for determining the quantum of deduction, provided that the acquisition of plot and also the construction thereon, are completed within the specified period as aforesaid.
In simple words, capital gains shall be exempt to the extent it is invested in the purchase and/or construction of another house.

laddu bandari - Member Since: Oct 2012
i didnt get dis method... tell me how to calculate hra for metero n non metero people at a time by using if condition.

taxtop - Member Since: Jan 2014
Pls see the attached document. self explanatory,, VERY good ADVICE Regards sumit taxtop.dan.gr


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