House Rent Allowance (HRA), is an important component in our salary slips, with upto 30% of basic pay (+DP) in metros. HRA is the allowance given to meet the staff's expenses towards renting an accommodation. Though very simple in concept and calculation, the tax implications of the HRA, puzzles many a people. Here are 7 must knows, to help you utilise this component of your salary in a tax efficient manner.
1) Conditions you need to satisfy for a HRA exemption
Under Section 10 of the Income Tax Act, certain exemptions are permissible on the received HRA. To claim such exemptions one must satisfy the below conditions.
The employee must not own the property in which he is residing.
Employees must be paying rent for the accommodation in which residing.
Such rent must be more than 10 per cent of his/her salary (see section 5).
if not, an exemption cannot be availed if there is no HRA component in the salary.
2) Calculating HRA for tax exemption
HRA tax exemption is based on the HRA received, basic pay, actual rent paid as well as if you stay in metro or non-metro. The amount exempted from the tax calculations is the least of the following.