Calculation of Income Tax benefit available on House Rent Allowance

In terms of section 10(13A) & Rule 2A of the amended finance act 2020, a salaried person can claim the exemption in respect of House Rent Allowance received from his/her employer. The least of the following three amounts is exempt from income tax:

a) Actual HRA Received

b) 40% of Salary* (50%, if house situated in Mumbai, Calcutta, Delhi or Madras)

c) Rent paid minus 10% of salary

* Salary = Basic + DA (if part of retirement benefit) + Turnover based Commission

Note:

1. If an HRA is received by an employee who is living in his own house or if he does not pay any rent, the HRA received is fully taxable income
2. The employee must report the PAN of the landlord to the employer if rent paid is more than Rupees one lakh (Rs.1 00,000) [ As per Income tax Circular No. 08 /2013 dated 10th October 2013].
3. HRA paid cannot be more than 50% of an employee’s basic salary.
4. An employee can claim the House Rent Allowance (HRA) exemption as above for the payment of rent made to his/her parents and collect a receipt for the HRA claim. However, similar rules don’t allow him/her to pay rent to spouse and claim a tax exemption.
5. In case your landlord is an NRI, you must deduct 30% tax from the rent amount that needs to be declared
6. The salaried person who opts for the new regime under section 115BAC is not eligible to claim deductions on the House rent allowance

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[Nearly, 104 amendments are made either by amending/omitting existing sections or by insertion of new sections. In this article, the amendments, which are most relevant to salaried persons, are covered below.]