House rent allowance exemption – HRA tax exemption calculator

What is HRA (House Rent Allowance)?

House rent allowance is an allowance paid to employee as part of salary, specifically paid to meet the expenditure incurred on payment of rent in respect of residential accommodation occupied by the employee.

HRA Exemption under Section 10(13A) of the Income-tax Act, 1961

House rent allowance received by the employee is exempt from the income tax to the extent the amount calculated as per Rule 2A of the Income tax rules 1962.

As per Rule 2A of the Income tax rules, least of the following is exempt from income tax-

1. The actual amount of such allowance received by the assessee in respect of the relevant period; or

2. The actual expenditure incurred in payment of rent in excess of 10% of the salary due for the relevant period; or

3. 40% of the salary due to the employee for the relevant period, (where such accommodation is situated in Bombay, Calcutta, Delhi or Chennai, 50% 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.

The employer should consider and allow this exemption for calculating taxable income at the time of deducting the tax at source.

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(Circular No:8/2007 Dt: 05.Dec.2007). 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.

In terms of circular 05/2011 issued by the Central Board of Direct taxes, if annual rent paid by the employee exceeds Rs 1,80,000 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.

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