House rent allowance (HRA) is a component of salary that is paid to an employee to help them meet the cost of renting a house. It is exempt from income tax under Section 10(13A) of the Income Tax Act, 1961, subject to certain conditions.

The amount of HRA exemption under income tax that an employee can claim is determined by the following factors:

• The city in which the employee is residing: The exemption under income tax limit is higher for employees who reside in certain metropolitan cities, such as Mumbai, Delhi, Kolkata, and Chennai.
• The employee’s basic salary: The exemption under income tax limit is calculated as a percentage of the employee’s basic salary. The percentage is higher for employees who reside in metropolitan cities.
• The actual rent paid by the employee: The exemption under income tax limit is the lesser of the following:
  • The actual rent paid by the employee.
  • The amount calculated as a percentage of the employee’s basic salary.

In addition to the above, an employee can also claim an additional exemption of income tax₹5000 for each dependent.

EXAMPLES

• Mumbai, Kolkata, Delhi, and Chennai: The maximum income tax HRA exemption is 50% of the basic salary.
  • For example, if an employee in Mumbai has a basic salary of Rs.100,000 per month, the maximum HRA exemption that he/she can claim is Rs.50,000 per month.
• Other cities: The maximum income tax HRA exemption is 40% of the basic salary.
  • For example, if an employee in Bangalore has a basic salary of Rs.100,000 per month, the maximum HRA exemption that he/she can claim is Rs.40,000 per month.

The following conditions must be met in order to claim HRA exemption under section income tax10 (13A) rules 2A:

• The employee must be staying in a rented accommodation.
• The employee must be receiving HRA from his/her employer.
• The rent paid by the employee must be a genuine expense.
• The rent paid by the employee must be less than or equal to 10% of his/her salary.

If all of these conditions are met, the employee can claim HRA exemption up to the maximum limit specified for the city in which he/she is staying.

Here are some additional things to keep in mind about HRA exemption:

• The HRA exemption income tax is available only for the actual rent paid by the employee. Any HRA received in excess of the actual rent paid is taxable.
• The HRA exemption is income tax available only for the first house that the employee occupies. If the employee occupies a second or subsequent house, he/she cannot claim HRA exemption for that house.
• The HRA exemption is income tax available only for the period during which the employee is actually staying in the rented accommodation. If the employee stays in his/her own house for some period of time, he/she cannot claim HRA exemption for that period.

FAQ QUESTIONS

• What is HRA?

HRA is a component of salary that is paid to an employee to help them meet the cost of renting a house. It is not taxable income if the employee meets certain conditions.

• What are the conditions for claiming HRA exemption?

The employee must: * Be a resident of India. * Rent a house in India. * Pay rent for the house. * The house must be used for the employee’s residence. * The employee must not own any house in India.

• What is the maximum amount of HRA exemption?

The maximum amount of HRA exemption income tax depends on the place where the employee is residing. For employees residing in metropolitan cities (Mumbai, Delhi, Kolkata, and Chennai), the maximum exemption is 50% of the basic salary. For employees residing in other cities, the maximum exemption is 40% of the basic salary.

• How is HRA exemption calculated?

The HRA exemption is calculated as follows:

Lower of the following:

* Actual HRA received

* 50% (or 40%) of basic salary

* Rent paid

• What are the documents required to claim HRA exemption?

The following documents are required to claim HRA exemption:

* Rent receipts

* Proof of identity and residence

* Salary slips

* Form 12A (certificate from the employer)

• What are the penalties for non-compliance with HRA rules?

If an employee fails to comply with the HRA rules, they may be liable for a penalty of up to 10% of the amount of HRA that they claimed as exemption.

CASE LAWS

• CIT v. H.V. Yazid (1978) 114 ITR 14 (Cal.): This case income tax established the constitutional validity of Rule 2A. The court held that the rule does not violate any provision of the Constitution.
• Armchair Union v. Union of India (2000) 243 ITR 143 (SC): This case income tax settled the question of whether HRA is ab initio taxable as income under ‘salaries’ or not. The court held that HRA is not taxable as income tax under ‘salaries’ and is, therefore, eligible for exemption under Section 10(13A)income tax.
• CIT v. P.G. Krishnan (2012) 347 ITR 324 (SC): This case income tax held that the exemption under Section 10(13A) is available only if the employee actually pays rent for the house he occupies. If the employee does not pay rent, he is not entitled to the exemption.
• CIT v. M.S. Ramachandran (2013) 358 ITR 215 (SC): This case income tax held that the exemption under Section 10(13A) is available even if the employee shares the rent with his family members. The court held that the sharing of rent does not amount to the employee not paying rent.
• CIT v. A.K. Mahajan (2014) 365 ITR 313 (SC): This case income tax held that the exemption under Section 10(13A) is available even if the employee pays rent in advance. The court held that the payment of rent in advance does not amount to the employee not paying rent.