RSS

HRA deduction – Tax Planning Tips and Clarifications

31 Dec

WISH YOU A HAPPY AND A PROSPEROUS NEW YEAR.

Q.1. What is HRA? 

HRA i.e. House Rent allowance is a common form of allowance employees receive. Taxation of HRA requires certain clarifications which generally people are looking for but do not get correct answers.

Q.2. What is the exemption available under Income tax act in relation to HRA? 

A part of HRA is exempted u/s 10(13A) of Income Tax Act, 1961.

The amount of exemption is taken to be the least of following three amounts:

  1. Amount of HRA received.
  2. Excess of Rent paid over 10% of Salary
  3. 50% of Salary, in case the employee resides in metro cities. otherwise 40% of salary

Q.3.  What is meant by Salary for the purpose of HRA?

Salary means Basic Salary + Dearness Allowance + Commission which is based on turnover acheived.

Q.4. If i stay in my own house and pay rent for some other house, is the rent paid considered for exemption?

The one and only important condition is that you should pay rent for the house in which you live. Such rent is only considered for exemption purpose. If you are staying in a house for which no rent is paid or payable, then HRA exemption is not available for you.

 Q.5. I worked for 8 months, but I paid rent for 12 months. what is your view about HRA exemption?

If you worked for 8 months, the next question is for how many months, did you receive HRA? If you received HRA for 8 months, then those 8 months’ rent expenditure is only taken for calculation of exemption purpose. Other months – No.

Q.6. My employer is asking proof for Rent payment. What should i do as per law?

As per Rule 2A, an employee who is getting House Rent Allowance of Rs.3000/- p.m. or lesser need not submit any sort of rent receipt to their employer. However, IT department can ask for such proof, in case they want. Otherwise, employer cannot ask for the proof upto Rs.3000/-

Those having house rent allowance of more than Rs.3000/- p.m. should definitely submit rent receipts to their employer for the employer to estimate your tax liability correctly.

Q.7. I want to do HRA planning in my Salary Structure. i.e. I want to know, How much HRA should i receive from the company to best utilize the exemption? Please advice.

First tell me, what is your rental expenditure p.a. as a percentage of salary

a) Rent as a percentage of Salary: say x%

b) Reduce x by 10, so you have (x-10)%

c) Your HRA as a component in salary structure should be (x-10)% or 50% whichever is lower.

Q.8. I want to do HRA planning by finding out how much rent should I pay to get the maximum benefit? Please advice.

This means that your HRA is fixed but you want to know what amount of rent can get maximum benefit to you.

If your HRA is 50% of salary or more, then your rent can be 60% of salary.

If your HRA is less than 50% of salary, then your rent can be (HRA as a percentage of Salary + 10)%

Please note: This is Tax Planning not Tax avoidance. This is one of my researched tax planning option… so enjoy!

WISH YOU A HAPPY AND A PROSPEROUS NEW YEAR.

About these ads
 
43 Comments

Posted by on December 31, 2007 in Income Tax

 

Tags: , , , ,

43 responses to “HRA deduction – Tax Planning Tips and Clarifications

  1. Muthu

    January 2, 2008 at 12:11 pm

    Hi,
    could u plz send me the model House Rent recipt,so that i can climb it from my houseowner……

     
  2. sanjaykadel

    January 3, 2008 at 7:22 am

    [Name of the Landlord]
    [Address of the House]

    “RENT RECEIPT”

    Received with thanks from ____________, a sum of Rs.________ as mentioned below being the rent @ Rs.________ per month, for the period from ________ to ___________, in respect of residential portion occupied in the _________ floor of above premises.

    [TAble to be put]
    Rent for the month of : Date of Payment: Mode of Payment: Amount (Rs.)

    Date: ____________
    Place: ________

    [Land Lord Signature]

     
  3. Sonal

    February 1, 2008 at 5:19 am

    Can u plz tell me, if i am co. & i want to give HRA to employees for claiming deduction then what will be the calcualation? Their is any rule for company if we are giving gross salary to them then what will be the bifurcation of Salary & HRA in percentage?

     
  4. sanjaykadel

    February 1, 2008 at 7:39 am

    In structuring the salary of an employee, there is no hard and fast rule for fixing HRA component. Usually Basic Wages are taken to be 50% of the total package of salary and then there is dearness allowance – say 20% of the total pay package. Then you can get the HRA component by applying FAQ no.7 (Given above) Hope you get it!

     
  5. Anonymous

    February 2, 2008 at 4:34 am

    alert(1)

     
  6. Linit

    February 11, 2008 at 6:01 am

    Please let me know Can i submit Rent aggrement with my landlord as a proof to avail HRA exemption?

     
  7. sanjaykadel

    February 12, 2008 at 1:56 pm

    You can submit Rent Agreement BUT THAT ALONE IS NOT ENOUGH. You need to give the proof of payment of Rent, which means Rent Receipt is a must.

     
  8. Mohideen

    March 19, 2008 at 12:26 pm

    Hi,

    After HRA exemption, balance of Rs.40,780 is left with for inclusion in taxable income. My doubt is , how tax is calculated on the balance either
    1, 30 % of balance
    2, included in taxable income & calulated as per tax slab

    Provide your comments

     
  9. mani kumar

    April 3, 2008 at 6:53 am

    How shall i get the house rent proof from lesser.is there any format?Pl send me that format and how to fill it up?

     
  10. mani kumar

    April 3, 2008 at 7:18 am

    If i submit the rent proof shall i need any attestation (sign from government ghezated officer) against the proof?

     
  11. mani kumar

    April 3, 2008 at 7:22 am

    Howmuch maximum can i detuct HRA from my salary.Iam in bangalore (peenya indl. estate)I am having consolidate pay of 15000 rupees.

     
  12. sanjaykadel

    April 18, 2008 at 6:06 am

    Rent proof does not require any sort of attestation or sign from gazzetted officer or CA. Rent Proof should definitely have the sign of the landlord or landlady. That’s set.

     
  13. sanjaykadel

    April 18, 2008 at 6:08 am

    For Mr. Mani Kumar: Max deductible amount from your consolidated pay of 15000 rupees.
    Please tell me, What is your HRA component in the consolidated pay? or What is the rent you actually pay per month?
    Then probably I can answer your question.

     
  14. sanjaykadel

    April 18, 2008 at 6:11 am

    For Mr. Mohideen: Your question:
    After HRA exemption, balance of Rs.40,780 is left with for inclusion in taxable income. My doubt is , how tax is calculated on the balance either
    1, 30 % of balance
    2, included in taxable income & calulated as per tax slab

    Provide your comments

    Answer:
    After HRA exemption, the balance amount will be included in taxable income and calculated as per tax slab. Your second option is right.

     
  15. sanjaykadel

    April 18, 2008 at 6:12 am

    For Mr. Mani:
    your questioN:
    How shall i get the house rent proof from lesser.is there any format?Pl send me that format and how to fill it up?

    Answer:
    The format is already there in this page. It’s easy to fill. Only basic info is required. Just go thru (Comment no. 2 on this post).

     
  16. Imran

    April 26, 2008 at 8:31 am

    Hi Sanjay,
    I have –
    HRA = 70,512
    40% of Salary = 94,013
    Excess of rent paid over 10% of salary = 54,497

    1. My landlord can not produce rent receipts due to some reasons. How much exemption can I get inthis condition?

    2. To get the benifit of the above mentioned HRA amount(70,512), is it mandatory to produce rent receipts?

    Please suggest.

    Thanks,
    Imran

     
  17. Vikal Tripathy

    July 15, 2008 at 8:56 am

    Professional Tax:

    You said
    Salary means Basic Salary + Dearness Allowance + Commission which is based on turnover acheived.

    Should we deduct the Profession tax from this, which is deducted at source. This tax is deducted from all salaries in some states like West Bengal, Andhra Pradesh and others.

     
  18. sanjaykadel

    July 15, 2008 at 11:31 am

    NO. The Profession tax should not be deducted while calculating the salary for the purpose of computing HRA.

     
  19. meghal Vasa

    July 16, 2008 at 11:40 am

    I am trying to upload the XML via e-filing website
    https://incometaxindiaefiling.gov.in
    but it always gives following error:
    Errors during Upload of ITR Return  
    Invalid XML File. Form Section of ITR is incomplete, please correct and upload again.
    Also how to digitally sign the return doc??
    pls advise!!

     
  20. pavan

    September 8, 2008 at 4:02 pm

    sir my hra is 4500 where my basic is 9000 p/m
    so tell me whether i have to pay tax for the hra

     
  21. srihari

    January 5, 2009 at 8:15 am

    my annual income is 1.8Lakh, my question “is tax deduction is applicable for this income”.

     
  22. Deepa

    February 12, 2009 at 8:36 am

    I am staying in a joint family with my in-Laws. The house is in teh name of my father-in-law. Can I claim HRA in this situation.

     
    • sanjaykadel

      February 12, 2009 at 11:21 am

      If you are paying rent to your father-in-law, then you can claim HRA. If not then NO.

       
      • Gauri Mendiratta

        September 10, 2012 at 8:00 am

        My employer has asked for a written evidence in order to claim HRA. I have paid house rent to my father-in -law. Where can I get such evidence from.

         
  23. Gupta

    March 16, 2009 at 11:28 am

    I have not declared monthly rent and not submitted rent receipts to my employer.
    Can i produce rent receipts while i file for tax returns and get tax exemption?

     
  24. Farrah Macchiwalla

    August 11, 2009 at 4:21 pm

    Hi,

    I’m setting up a new company and I’m curious as to how HRA is withheld from an employee’s salary and paid out.

    Please advise.
    Farrah

     
  25. HRA Calculation

    October 28, 2009 at 12:53 pm

    Sir i am not able to undersand HRA calculation “Excess of Rent paid over 10% of Salary” Kindly clearify the same

     
  26. Senthil

    October 28, 2009 at 12:54 pm

    Sir i am not able to undersand HRA calculation “Excess of Rent paid over 10% of Salary” Kindly clearify the same

     
  27. Anil

    December 3, 2009 at 4:51 am

    Sir
    I am staying with my parents and receiving Rs. X as HRA.
    My father owns the house and he has other taxable income.
    Can I pay rent to my mother to claim HRA deduction, as she has no other taxable income.

     
  28. amit sharma

    February 2, 2010 at 6:41 am

    i have made some investment under sec 80(c) i.e 1 lakh my question is this hra slab is different from 80(c) is’nt it, is there is any caping on exemption amount or not like 80(c) only allow 1 lakh

     
  29. medha m deshpande

    February 21, 2010 at 9:34 am

    dear sir,
    our director taking a salary of rs. 1,00,000/– each month, can he claim HRA Deduction & how much

     
    • sanjaykadel

      February 23, 2010 at 6:39 am

      Dear Medha M Deshpande,

      Your director can definitely claim HRA provided he is paying rent for the house in which he stays.

      Other clarifications are already available in the article above, but still repeated below for your query’s purpose:

      Q. What is the exemption available under Income tax act in relation to HRA? A Part of HRA is exempted u/s 10(13A) of Income Tax Act, 1961. The amount of exemption is taken to be the least of following three amounts: 1. Amount of HRA received. 2. Excess of Rent paid over 10% of Salary 3. 50% of Salary, in case the employee resides in metro cities. otherwise 40% of salary

      Q. What is meant by Salary for the purpose of HRA? Salary means Basic Salary + Dearness Allowance + Commission which is based on turnover acheived.

      Regards Sanjay Kadel

       
  30. medha m deshpande

    February 21, 2010 at 9:36 am

    Sir,
    Please explain the HRA Deduction by taking 1 exampal

     
    • sanjaykadel

      February 23, 2010 at 6:50 am

      =============================
      Example for HRA Calculation:
      =============================

      Mr. XYZ has his salary structure as below (per month):
      Basic Salary: 30000
      Dearness Allowance: 2000
      Travelling Allowance: 800
      House Rent Allowance: 5000
      Other Allowances: 2200
      Total Salary: 40000

      Suppose Mr. XYZ lives in a rented house and pays Rs.6000 as Rent per month, Let’s see how much HRA exemption does he get.
      (a) Salary for the purpose of HRA is Basic + DA. In this case it is: 30000 + 2000 = 32000
      (b) Amount of exemption is least of the following:
      (b.1) Actual Amount of HRA received: 5000
      (b.2) Excess of Rent paid over 10% of Salary: 6000 – (10% of 32000) = 6000 – 3200 = 2800
      (b.3) 50% of Salary: 50% of 32000 = 16000
      (b.4) Least of the above all is Rs.2800, as arrived in (b.2)

      Therefore, the HRA portion will be taxed in the following manner:
      Actual amount of HRA received as per Salary Structure: 5000
      Less: Amount exempted as calculated above: 2800
      Taxable portion of HRA: 2200

       
  31. Amol S. Kamble

    February 26, 2010 at 11:36 am

    Sir,
    Basic Salary: 13650 p. m.
    Dearness Allowance: 7149 p. m.
    Travelling Allowance: 400 p. m.
    House Rent Allowance: 2250 p. m.
    Other Allowances: 2648 p. m.
    Total Salary:26097

    Sir please tell me how much will Taxable portion of HRA

     
    • sanjaykadel

      February 26, 2010 at 1:12 pm

      Dear Mr. Amol S. Kamble,

      You have not mentioned – How much is the Actual Rent paid p.m. ?? Without that we cannot calculate the exempted portion of HRA or taxable HRA!

      Regards Sanjay Kadel

       
  32. dr.rakesh

    March 26, 2010 at 10:10 am

    i am contractual employee in govt hospital. my consolidated salary is 30,000 + rent free accomodation.we have TDS @ 10.3%. my friend is living in a rented house and getting 26910+2691 (2691.00 as hra). i am living in accomodation provided by employer and getting 26910.00 for past 15 months. now the employer has deducted 10.30% of accomadation valued of 3,000.00 for 15 months in salary of february. and now i m getting 26601.00. plz advice that this deduction is right or not? who should pay the tax on accomodation provided by employer?

     
  33. dr. i.chatterjee

    May 6, 2010 at 10:31 am

    How can I deduct HRA from relatives of deceased forcefully occupied the quarter?

     
  34. dr. i.chatterjee

    May 12, 2010 at 5:58 am

    dr. i.chatterjee :
    How can I deduct HRA from relatives of deceased forcefully occupied the quarter?

     
  35. Suneeta Pathak

    July 7, 2010 at 7:37 pm

    Hai,

    Plz tell me how do i plan to save tax – related to HRA exemption

    Basic : 164,500
    HRA :82,250

    I pay monthly rent about Rs.8000
    & city i live in is not a metro

    i have joined the job recently and relocated from a metro city to the other and their is a bulk amount deducted from my salary due to this. could u help me to sort out this.

     
  36. rajeev

    November 13, 2010 at 8:44 am

    hra during transfer of employee where the family of family is still occupying the earlier house .

     
  37. hemNT

    February 1, 2011 at 10:19 am

    I want to know the maximum deduction of HRA from salary

     
  38. shiva subramanian

    August 2, 2011 at 2:07 pm

    i am central govt employee…my basic salary =15340 ,DA=7823,HRA=4602, I AM PAYING RENT RS.6000/ PM STAYING IN METRO MUMBAI….KINDLY HELP ME IN CALULATING HRA DEDUCTION U/S 10

     

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

 
Follow

Get every new post delivered to your Inbox.

Join 25 other followers

%d bloggers like this: