September 19, 2019

House Rent Allowance

House Rent Allowance

House Rent Allowance is given by employer to employee to meet the expenses in connection with Rent of property which the employee might have taken. This is included in salary package of employee.

Rule 2A of the Income Tax Rules :  Exemption is provided in Rule 2A of income Tax Rules

Exemption lower of following:

  • Actual House Rent Allowance Received
  • Rent paid

 Less: 10% of Salary

  • 50% of Salary( if house on rent is in Mumbai, Calcutta, Delhi or Madras)

40% of Salary (if house on rent in any other place)

Salary =  Basic Salary + Dearness Allowance + Commission on fixed percentage of turnover

  • For claiming Exemption, employee must resides in rented property.
  • There is no requirement that the employee should not own a house
  • Exemption is not available if
  1.               Employee resides in his own house
  2.               If employee does not incur any expenditure on rent
  • Exemption can be claimed if the house is owned by close relative ( i.e. wife or husband or father or mother) and for which rent is paid regularly
  • Employee should submit to employer a written statement containing rent paid, name of landlord, address of property, PAN of landlord(only if rent paid is more than 1,00,000 per annum) along with rent receipt given by landlord.
  • For claiming exemption, employee need to produce a proof for rent receipt exception to this is that if the employee is drawing House Rent Allowance is upto 3,000 per month there is no requirement for producing rent receipt
  • If employer needs to take benefit of rent then he can claim under Section 80GG.
  • If an employee has purchased his own property for which he has taken loan and he is staying on rented house then he can claim benefit

Principal amount-80C

Interest on borrowed loan Section 24

Rent as per HRA benefit

Basic salary                                                     5,00,000

House Rent Allowance Received                  15,000p.m

Rent paid(Delhi)                                            10,000 p.m