What is HRA?

House Rent Allowance or HRA is a salary component paid to employees by an employer towards the accommodation cost of living in that city. Even though it is a part of your salary, unlike your basic pay, HRA isn’t entirely taxable, subject to conditions (a percentage of HRA is exempted under Section 10 (13A) of the IT Act, 1961).

HRA EXEMPTION

The salary or pay for individuals can be defined as the sum of their basic salary, DA (dearness allowance), and any/all other commissions as applicable. HRA deduction calculation for employees residing in a metro will be 50% of the basic salary and is 40% for residence in a non-metro city. In case of salaried individuals without a DA component or commissions in their remuneration, the HRA allowance will be 40 or 50% of their basic pay.

The actual amount which you can claim for deductions under HRA will be the lowest of the three provisions:

(i) HRA received
(ii) Rent paid minus 10% of (Basic + DA)
(iii) 40% of (Basic + DA) (50% in case of Mumbai, Chennai, Kolkata, and Delhi).

HRA in New Tax Regime

The new regime has witnessed a lot of changes when compared to the old regime. However, one of the biggest changes that are to be pointed out is the fact that the new regime will not have some of the exemptions or deductions from the last tax regime. These include the House Rent Allowance or HRA as well. Thus, if you opt for the new tax regime and file your taxes accordingly, you will not be able to enjoy the deduction for HRA.

Documents Required to Claim Tax Exemption on HRA

The main document that has to be provided at the time of the claiming tax exemption for HRA is rent receipts/rental agreement. Being a taxpayer, you will be eligible for this exemption even if you are paying rent to your parents.

As the taxpayer, you will have to submit your rent receipts/rental agreement to avail of tax exemption on HRA. The PAN details of the landlord/landlady to be provided in the cases where the annual rent of the housing unit exceeds the mark of Rs.1 lakh.

FAQs

1. Once you have completed 5 years, what is the method to calculate the number of months?

Ans: Well, any service that is more than 6 months is considered as one year. For example, if your tenure in the organization was 7 years 6 months, then to calculate gratuity your tenure will be taken as 8 years.

2. What is the limit that is received as a Gratuity Benefit?

Ans: As per the latest update, the Central government has decided to increase the gratuity payment limit from the existing Rs. 10 lakh to Rs. 20 lakhs.

3. Can you select a nominee for the gratuity?

Ans: To choose the nominee you need to fill Form ‘F’ at the time of joining the company.

4. Who is eligible for gratuity?

Ans: An employee who has completed five years of continuous service in the same organization is eligible to receive gratuity. An employee gets gratuity when he/she resigns, retires or is laid off. In case of death or disablement there is no minimum eligibility period.