Understanding HRA Exemption: Is It Income When Living in Company Quarters?

Dear Experts,

Please let me know about the HRA exemption in cases where employees receive HRA from the employer as part of their salary. On the other hand, it is deducted from their salary for those availing residential quarters provided by the company township. In this scenario, should HRA be calculated as income or not?

Regards,
S. Shah

I am slightly confused with your query.

Condition 1: If the employees are enjoying company-provided accommodation absolutely free, then their HRA is taxable.

Condition 2: If the employees are paying a certain amount, then the actual amount is considered non-taxable.

Please find below the general rule:

House Rent Allowance (HRA): Rent receipts can be shown for taking tax benefit for living in a rented house. Income tax exemption for HRA will be the least of the following:

• The actual amount of HRA received as a part of the salary.

• 40% (if living in a non-metro area) or 50% (if living in a metro area) of (basic salary + Dearness allowance (DA)).

• Rent paid minus 10% of (basic salary + DA).

In some cases, a deduction for both HRA and home loan interest (u/s 24) can be taken together if the owned house is not in the same city or not at a commutable distance to the office.

For further clarification, feel free to discuss or write.

Regards.

Thank you for explaining the general rule for HRA Income Tax Exemption. I am still slightly confused about the following case:

HRA and Company Accommodation

Employees are receiving HRA as earnings from the employer, and the same HRA is being deducted as a deduction for those employees who are provided company accommodation. Both aspects are mentioned in their salary slip. Therefore, HRA is also calculated in the gross salary. In reality, employees are not actually receiving the HRA amount from the employer. In this scenario, should HRA be calculated as income or not?

Regards,
S. Shah

As they are receiving the HRA, it will be considered as income. However, since they are paying "rent" for accommodation, it will be considered as non-taxable as per the rule.

For any further clarification, feel free to write or discuss.

Regards