What is it
Your employer gives the house rent allowance, or HRA, to help you meet accommodation expenses. If it’s part of your salary structure, it will be given to you irrespective of whether you own a house or stay on rent. This allowance carries a tax benefit.
How much is the benefit
The HRA is eligible for tax exemption under section 10(13A) of the Income-tax Act. To determine how much of your HRA is tax-free, you will have to do three calculations. One, calculate 50% of your basic salary (basic plus dearness allowance) if you live in one of the four metros (Mumbai, Delhi, Kolkata and Chennai) and 40% if you are staying in any other city. Two, take your actual HRA. Three, take the total rent you pay minus 10% of your basic salary. Out of these, whichever is the lowest amount is tax-exempt provided you produce the rent receipts, lease agreements or any other proof required as per your company’s policy.
When do you get it
To claim tax benefit on your HRA, you have to produce rent receipts. You can produce rent receipts obtained from your parents, too, if you live with them. However, they need to declare the rent received in their taxable income.
If you own a house and yet live in rented premises on account of your profession, employment or business carried on at any other place, then your HRA is eligible for exemption, and there is also no deemed income from your own property. If not, the deemed income that is the rent you would have accrued is calculated as per the municipal value and is taxable as income from house property in your hands.