Taxability of House Rent Allowance (HRA)
Introduction
HRA is provided by the employer to employees to meet the cost of rented accommodation. Exemption is allowed under the Income-tax Act if the employee pays rent for a house not owned by them.
Conditions for Exemption
- Employee must occupy rented accommodation and pay rent.
- No exemption is available if:
- Employee lives in his own house.
- No rent is paid for the accommodation.
Calculation of Exemption [ Rule 2A]
The exemption is the minimum of:
- Actual HRA received.
- Rent paid minus 10% of salary.
- 50% of salary (metro cities: Delhi, Mumbai, Kolkata, Chennai) or 40% (non-metro cities).
- Salary Definition: Includes basic salary, dearness allowance (if part of retirement benefits), and commission (based on turnover). Calculated for the period during which the rented house is occupied.
Evidence Submission for Exemption
- Employees must submit rent receipts to the employer, including the landlord’s name and address.
- For rent exceeding 1,00,000 annually, the employee must provide the landlord’s PAN or a declaration if PAN is unavailableand employee is also required to furnish the required details in Form 12BB. [Circular No. 01/2019, Dated 01.01.2019]