Today we will discuss about HRA (House Rent Allowance): –
House Rent Allowance given by the employer to employee towards meeting out the expenses on House Rent Paid by employee. It is part of salary and is taxable subject to section 10(13A) read with rule 2A
Section 10(13A) provides the calculation mechanism for exemption of HRA, which says the least of the following will be exempt;
- Actual HRA Received for relevant period
- Excess of Rent paid over 10% of salary for relevant period
- 50% of the salary if the residence is situated at Mumbai, Kolkata, Delhi and Chennai and 40% if residence is situated at any other place.
As pointed out above least of three will be exempt and balance amount will be taxable under the head Salaries.
Important points to note: –
Salary here means basic salary and dearness allowance (if the terms of employment so provide i.e. it is part of salary for the purpose of retirement benefits). Commission if received as a fixed percentage of turnover achieved by employee would also form part of salary.
Relevant Period means the period during which the accommodation was occupied by the assessee during the previous year.
So going through in details we find out that there are 4 parameters on which calculation of exemption is dependent viz.
- Actual HRA
- Rent Paid
- Salary
- Location of Stay
Calculation formula will change in case of change in any of the parameter defined above and cab be better explained with the help of following example: –
A is Employed in Mumbai with a Private Limited Company in the FY 2017-18 and his particulars are as below: –
| S. No. | Particulars | Details |
| 1 | Basic Salary | 30000.00 pm |
| 2 | Dearness Allowance (Forming part of basic salary) | 10000.00 pm |
| 3 | Conveyance/Transport Allowance | 5000.00 pm |
| 4 | Commission @ 2% of the turnover achieved
Total turnover Rs. 45.00 Lacs and the same was evenly spread during the whole financial year |
90000.00 pm |
| 5 | HRA | 15000.00 pm |
Till 30.09.2017 he was in Ghaziabad and monthly rent was Rs. 10000.00 pm. From October 1 his basic Salary was increased from Rs. 30000.00 to Rs. 40000.00 pm. From First January shifted to Delhi and rent increased to Rs. 20000.00 pm. Calculate the HRA.
| S. No. | Particulars | Details | Period till first change i.e. 30.09.2017 | Details | Period from 1st change to 2nd Change i.e. from 1st October to 31st December | Details | Period from 2nd change to 3rd Change i.e. from 1st January to 31st March 2018 |
| 1 | Actual HRA Received (A) | 15000 pm | 90000.00 | 45000.00 | 45000.00 | ||
| 2 | Calculation of Exemption u/s 10(13A) | ||||||
| B | Actual HRA Received | 15000 pm | 90000.00 | 45000.00 | 45000.00 | ||
| C | Excess of Rent paid over 10% of Salary for Relevant Period | Rent paid 60000 (10000*6)-10% of 285000.00 | 31500.00 | Rent paid 30000 (10000*3)-10% of 172500.00 | 12750.00 | Rent paid 60000 (20000*3)-10% of 172500.00 | 42750.00 |
| D | 40/50% of Salary | 40% of Salary being in Ghaziabad | 114000.00 | 40% of Salary being in Ghaziabad | 70000.00 | 50% of Salary being in Delhi | 86250.00 |
| Least of A/B/C=E | 31500.00 | 12750.00 | 42750.00 | ||||
| Taxable HRA (A-E) | 58500.00 | 32250.00 | 2250.00 |
Calculation of Salary
| S. No. | Particulars | Period till first change i.e. 30.09.2017 | Period from 1st change to 2nd Change i.e. from 1st October to 31st December | Period from 2nd change to 3rd Change i.e. from 1st January to 31st March 2018 |
| Basic Salary | 300000.00 Per month till September 2017
40000.00 per month from October to march 2018 |
180000.00 | 120000.00 | 120000.00 |
| Dearness Allowance | Rs. 10000.00 per month | 60000.00 | 30000.00 | 30000.00 |
| Commission
|
90000.00 pa
7500.00 pm |
45000.00 | 22500.00 | 22500.00 |
| TOTAL | 285000.00 | 172500.00 | 172500.00 |
Leave a Reply