Taxexcel: CBDT Circular Number 8/2013 dated 10/10/2013 about HRA Exemption

Sunday 11 January 2015

HOUSE RENT ALLOWANCE Sec.10 (13A)

Download HRA Exemption Calculator U/s 10(13A)

Objective: To claim exemption for House Rent Allowance under Sec.10 (13A).

Definition as per Income Tax Act, 1961:

any special allowance specifically granted to an assessee by his employer to meet expenditure actually incurred on payment of rent (by whatever name called) in respect of residential accommodation occupied by the assessee, to such extent as may be prescribed having regard to the area or place in which such accommodation is situate and other relevant considerations.]

[Explanation.—for the removal of doubts, it is hereby declared that nothing contained in this clause shall apply in a case where—

(a) The residential accommodation occupied by the assessee is owned by him; or

(b) The assessee has not actually incurred expenditure on payment of rent (by whatever name called) in respect of the residential accommodation occupied by him]

Rule: Under Sec. 10(13A), an employee who is in receipt of House Rent Allowance (HRA) can claim exemption, if he does not live in his own house, and pays rent in excess of 10% of his salary for his residential accommodation.

The assesse is not entitled to receive HRA in the following cases:

a) When the assesse stays in his own house, i.e. the property is in Assesse name.

b) When the assesse does not pay any rent or incur any expenditure towards rent,

c) When the assesse rent paid is less than 10% of salary.

1.The exemption shall be calculated on the basis of where the accommodation is situated.

2.If place of employment is the same for the whole year, then exemption shall be calculated for the whole year.

3.If there is a change in place during the previous year, then it shall be calculated on monthly basis.

4.Exemption should be calculated in respect of the period during which rental accommodation is occupied by the employee during the previous year.

Computation of taxable HRA:

Step 1: - Salary= Basic Salary + DA considered for Retirement Benefits + Commission forming part of Salary as a Fixed Percentage of Turnover of the Employee.

Step 2: - Taxable HRA:

Amount received during the financial year towards HRA

Less: Exemption u/s 10(13A) is the least of the following

Actual amount of HRA received

50% (for Chennai, Mumbai, Kolkata and Delhi)/40% (for other places) of the Salary for the relevant period

Rent paid Less 10% of Salary for the relevant period.

Click here to Download the HRA Calculator in Excel

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Thursday 3 July 2014

Under section 10(13A) of the Act, any special allowance specifically granted

to an assessee by his employer to meet expenditure incurred on payment of

rent (by whatever name called) in respect of residential accommodation occupied

by the assessee is exempt from Income-tax to the extent as may be prescribed,

having regard to the area or place in which such accommodation is situated and

other relevant considerations. According to Rule 2A of the Rules, the quantum

of exemption allowable on account of grant of special allowance to meet expenditure

on payment of rent shall be the least of the following:

(a) The actual amount of such allowance received by the assessee in respect of the

relevant period i. e. the period during which the accommodation was occupied

by the assesse during the financial year; or

(b) The actual expenditure incurred in payment of rent in excess of 1/10 of the

salary due for the relevant period; or

(i) Where such accommodation is situated in Bombay, Calcutta, Delhi or

Madras, 50% of the salary due to the employee for the relevant period; or

(ii) Where such accommodation is situated in any other places, 40% of the

salary due to the employee for the relevant period,

For this purpose, "Salary" includes dearness allowance, if the terms of employment

so provide,but excludes all other allowances and perquisites.

It has to be noted that only the expenditure actually incurred on payment of rent in

respect of residential accommodation occupied by the assesses subject to the limits

laid down in Rule 2A, qualifies for exemption from income-tax. Thus, house rent

allowance granted to an employee who is residing in a house/flat owned by him is

not exempt from income-tax.

The disbursing authorities should satisfy themselves in this regard by insisting on production

of evidence of actual payment of rent before excluding the House Rent Allowance or any

portion thereof from the total income of the employee.

Though incurring actual expenditure on payment of rent is a pre-requisite for claiming

deduction under section 10(13A), it has been decided as an administrative measure that

salaried employees drawing house rent allowance upto Rs.3000/- per month will be

exempted from production of rent receipt. It may, however, be noted that this concession

is only for the purpose of tax-deduction at source, and, in the regular assessment of the

employee, the Assessing Officer will be free to make such enquiry as he deems fit for

the purpose of satisfying himself that the employee has incurred actual expenditure on

payment of rent.

Further if annual rent paid by the employee exceeds Rs 1,00,000 per annum, it is

mandatory for the employee to report PAN of the landlord to the employer. In case

the landlord does not have a PAN, a declaration to this effect from the landlord along

with the name and address of the landlord should be filed by the employee.