Let’s think you get a job in a big city like Mumbai. You have to leave your hometown. Now you want that job and Mumbai. Stop; one of your close friends who returned from Mumbai tells you about the exciting but hard and challenging life of Mumbai. You are excited about the fast life and daily traveling in the local trains but also afraid about the high expenditure of Home rent. Oh no! How will I manage that? How will I save after paying that high rent? Do not worry. You can still save with HRA. If you are thinking, what is HRA(House Rent Allowance), then continue reading.
Why is HRA Given?
Salaried people often have to leave their hometowns to work in big cities. Most of them don’t buy properties as this is very high in cost, so they opt for living on rent in an apartment. Also, living on rent is economically beneficial for them rather than buying a costly property. Many employers choose to give allowance to their employees for their rent. The allowance becomes part of the salary.
What is HRA?
The Employer benefits their employee for house rent expenses, and this benefit is termed as HRA(House Rate Allowance).
Now go and check your offer letter and Wow! Your problem is solved. You have HRA in your gross salary. Wait, wait, wait; If HRA includes my salary, then gross income will be more, and What about the taxes? Do I have to pay more? Yes, you have to pay more. But, stay here; that problem will be solved in just a minute.
Tax Benefits of HRA
Even if the salary increases with HRA, it is not totally taxable under the Income Tax Act, 1961. According to the Income Tax Act, 1961, section 10(13A), the following will not be part of taxable income.
1. The HRA received
2. 40%/50% of the salary
3. Rent paid more than 10% of salary.
Salary for this purpose= Basic Salary + Dearness Allowance(That is forming part of retirement benefits)
***50% of metro cities like Mumbai, Delhi, Chennai, Kolkata and 40% for other cities.
I know this calculation is hard to understand for a commoner. Worry not. I am here with some examples to make these easy to understand.
Example 1:
Assume Mr. M live in Mumbai and his employer gives him the following receipts:
Basic Salary(pa) Rs.9,50,000
DA(In terms) Rs.25,000
HRA received Rs.4,70,000
Actual rent paid Rs.6,30,000
Then the exemption should be lowest out of the following-
1. Actual HRA received — Rs.4,70,000
2. 50% of salary — 4,75,000
3. Actual rent paid-10% 0f salary =(6,30,000–95,000) 5,35,000
Exemption = Rs.4,70,000
Example 2:
Mr. Y live in Pune, and his employer gives him the following receipts:
Basic Salary (pa) Rs.6,50,000
DA (In terms) Rs.15,000
HRA received Rs.2,40,000
Actual rent paid Rs.3,00,000
Therefore, the exemption shall be the least of the following:
1. Actual HRA received — Rs.2,40,000
2 .40% of salary — Rs.2,66,000
3. Actual rent paid (–) 10% of salary — Rs.2,33,500 (3,00,000–66,500)
Exemption = Rs.2,33,500
Important Points to Remember About HRA:
*From financial year (20–21), all taxpayers have two tax regimes, old or new; out of both,, he has to choose one. The taxpayers who choose new will not get the HRA benefits as there is no way to deduct in new tax regimes. But, if someone chooses the old, then he has benefits of HRA exemption.
*HRA is fully taxable for employees who live in their own house and do not pay the rent.
*To get the benefit of HRA exemption, the employee has to provide a rent receipt to the employer.
I hope now you have a better understanding of what HRA(House Rent Allowance) is and how you can save money from this.
The End…..
Ya! It's obsolutely right....without those rent people in a remote area when they go for their studies they'll face difficulties
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