House Rent Allowance (HRA) is a general component of salary structure and allowed as allowance. Though House Rent Allowance is a part of the salary, is not wholly taxable. Subject to conditions specified in the provision of section 10(13A) of the Income Tax Act, a portion of House Rent Allowance gets exempted. The benefit available as House Rent Allowance is only to a salaried individual, who is having House Rent Allowance as a part of his salary and the salaried person is staying in a rented accommodation. However, the self-employed individuals cannot avail the benefit of House Rent Allowance deduction. So, what is process for Calculating Exemption u/s 10(13) for House Rent Allowance?
Calculating Exemption u/s 10(13) for House Rent Allowance
The benefit of the HRA exemption is the minimum of:
- i) The Actual House Rent Allowance received
- ii) 40% of salary if living in non-metro cities or 50% in metro cities; and
iii) Excess of rent paid p.a. over 10% salary computed annually (The Actual Rent paid minus 10% of Salary)
For the computation of HRA, Salary = Basic Salary plus (DA) Dearness Allowance (if it forming a part of the retirement benefits) + Sales commission received ( Computed on the basis of sales turnover)
Note: The benefit of this deduction is available only for the specified period in which the person occupied the rented accommodation.
Person who is ineligible to claim HRA but pay rent can – Section 80GG
Self-employed person and a salaried person who are ineligible to received House Rent Allowance but paying house rent can avail the deduction available U/s 80GG.
Amount of Deduction available — Section 80GG
The exemption under Section 80GG is the minimum of:
(i) The Actual Rent paid in excess of 10 percent of the Adjusted Total Income
(ii) 25% of the Adjusted Total Income
(iii) Rs 5,000 per month
For Calculation of benefit 80GG, Adjusted Total Income = (Gross Total Income minus Short term capital gain minus Long-term capital gain of 10% category minus Chapter VI-A Deductions (80C to 80U except for 80GG and foreign income from the company).
Conditions for claiming deduction under Section 80GG:-
- The benefit of this section 80GG is only available to an HUF or an Individual.
- The assessee is either a salaried person or Self-employed
- The assessee himself or his Minor child or his spouse shouldn’t own any house at the place where the assessee carries his business or profession or is employed
- The individual is required to file a declaration in prescribed form 10BA satisfying all the conditions stated above.