HRA allowance is exempt or not.

Question BankCategory: Income TaxHRA allowance is exempt or not.
Petric asked 1 month ago

I am working in a company in Bhopal. I am receiving HRA allowance Rs. 7000 per month from my employer. I am living in a rented flat and I am paying rent of Rs. 12000 per month. My annual salary is Rs. 650000/- But my employer is adding my HRA in my taxable income. Is HRA taxable or not taxable as I am paying rent more than HRA then my HRA should be exempt. am I still liable to pay tax on HRA.

1 Answers
Ashu answered 1 month ago

House Rent Allowance(HRA) is exempted under section 10(13A) if certain conditions are satisfied. But tax exemption of house rent allowance is not available in case you choose the new tax regime from FY 2020-21 (AY 2021-22). 
For FY 2019-20 and FY 2020-21 (Old tax regime), HRA exemption can be claimed if following conditions are satisfied:-

  1. Assesse should be a salaried person.
  2. He is receiving HRA from his employer
  3. he is living in rented accommodation. 

Quantum of Exemption of HRA:-
HRA is not fully exempt but it is exempt only upto a limit calculated as given below:-
HRA Exemption is equal to least of the following amounts:-

  1. Actual HRA received
  2. 50% of [basic salary + DA+ Commission] for those living in metro cities (40% for non-metros)
  3. Actual rent paid less 10% of (basic salary + DA+ Commission)

In your case:-

  1. Actual HRA is Rs. 84000/-
  2. 40% of salary is Rs. 260000/-
  3. Rent paid over 10% of salary is (144000-65000)=79000

Least of above three is 79000 hence out of HRA of Rs. 84000 , an amount of Rs. 79000 is exempt and balance 5000 is taxable. 

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