House rent allowance (HRA) [Section 10(13A)] :
HRA is a special allowance specifically granted to an employee by his employer towards payment of rent for residence of the employee. HRA granted to an employee is exempt to the extent of least of the following:
| Metro Cities (i.e. Delhi, Kolkata, Mumbai,
Chennai) |
Other Cities |
| 1) HRA actually received. | 1) HRA actually received.
|
| 2) Rent paid-10% of salary for the relevant
Period |
2) Rent paid-10% of salary for the relevant
Period
|
| 3) 50% of salary for the relevant period | 3) 40% of salary for the relevant period
|
Note: 1. Exemption is not available to an assessee who lives in his own house, or in a house for which he has not incurred the expenditure of rent.
2. Salary for this purpose means basic salary, dearness allowance, if provided in terms of employment and commission as a fixed percentage of turnover.
3. Relevant period means the period during which the said accommodation was occupied by the assessee during the previous year.
Illustration 11
Mr. Raj Kumar has the following receipts from his employer:
| (1) Basic pay | Rs 3,000 p.m. |
| (2) Dearness allowance (D.A.) | Rs 600 p.m. |
| (3) Commission | Rs 6,000 p.a. |
| (4) Motor car for personal use (expenditure met by the employer) | Rs 500 p.m |
| (5) House rent allowance | Rs 900 p.m. |
Find out the amount of HRA eligible for exemption to Mr. Raj Kumar assuming that he paid a rent of Rs 1,000 p.m. for his accommodation at Kanpur. DA forms part of salary for retirement benefits.
Solution:
| HRA received | Rs 10,800 |
| Less: Exempt under section 10(13A) [Note 1] | Rs 7,680 |
| Taxable HRA | Rs 3,120 |
Note 1: Exemption shall be least of the following three limits :
| (a) the actual amount received (Rs 900 × 12) | = Rs 10,800 |
| (b) excess of the actual rent paid by the assessee over 10% of his salary
= Rent Paid – 10% of salary for the relevant period = (Rs 1,000×12) – 10% of [(Rs 3,000+Rs 600 ) × 12] = Rs 12,000 – Rs 4,320 |
= Rs 7,680 |
| (c) 40% salary as his accommodation is situated at Kanpur
= 40% of [(Rs 3,000+ Rs 600) × 12] |
= Rs 17,280 |
Note: For the purpose of exemption under section 10(13A), salary includes dearness allowance only when the terms of employment so provide, but excludes all other allowances and perquisites.