HRA
or House Rent Allowance is the allowance that is
given to an employee from the employer in
order for them to pay for the rental accommodation charges for where
they are living.
This is primarily meant for those people who work
outside of their hometown and are in
requirement of staying in a temporary accommodation situation. According to the
new law for Income Tax, the house rent allowance that an employee is playing is
exempted from paying tax. This is
commonly known as HRA exemption.
There
are a number of rules and regulations
that need to be kept in mind for an
individual who wants to be considered
under the HRA exemption. Some of the necessary fields that need to be abided by
the employer who is getting
tax exemption from their employee are:
· The House Rent
Allowance needs to be given from the employer to the employee.
· The actual rent for the accommodation is deducted from 10%
of the basic salary of the employee.
· For those who are
living in metropolitan cities like Mumbai, Kolkata, Delhi, and Chennai, they are to be allotted 50% of
their basic salary as House Rent Allowance.
· For those who are
working and living in non-metropolitan areas, their house rent allowance is
usually 40% of the basic salary that they receive from the employer.
If
the employee pays less for their rent and there is part of the house rent
allowance remaining after he/she has paid for their accommodation, this
remaining salary is added back to the
basic salary of the employee which will now be taxable under the income tax.
Calculating and Understanding HRA
Exemptions
The
first thing that we need to understand before calculating the amount of
exemption is the criteria for the exemption. For this, an example is an ideal way to understand the amount of money
that is considered as non-taxable from
the HRA exemption.
Rahul
is an employee who works in a firm in Kolkata. The basic salary that he
receives at the end of each month from this employer is Rs50, 000. The same
employer pays him an amount of Rs15,000 as house rent allowance so that he can
pay for the place that he has rented out and currently lives in. The amount of excess rent that is laid to the landlord over 10% of the basic
salary of Rahul is Rs1,75,000. Between all the figures that are mentioned in the above example, the amount
of money that is exempted from taxes is
the minimum amount, i.e. 15,000 rupees. 15,000
rupees if Rahul’s HRA exemption amount.
Now,
there are special cases that also need to be
considered where Rahul is considered to be living with his parents in
the same city and gets HRA allowance from his employer. Then for Rahul to make
sure that HRA exemption is applied to
him, he needs to submit the evidence that he pays rent to his parents for
living there. The only condition for this to get through is if the house is in
the name of Rahul’s parents and not in his own
name. The HRA that the parents receive from Rahul should also be reflected in their income tax forms that
they need to file at the end of each financial year.
HRA Exemption Benefits
Not
all employees are allotted a separate House Rent Allowance from their employees
and thus not all the employees can avail for
the HRA exemption from their taxes. Only those individuals who have a separate
allowance from their employer in the form of house rent are the ones that can
ask for HRA claims and return benefits.
The
best part about House
Rent Allowance is that it is a separate salary allotted by the employer, so house rent is
not deducted from the normal salary of an individual leaving them with
very less amount of money for themselves and for purchasing their daily
amenities and so on. The separate house rent allowance is a way of the employer
or the company to ensure that the employers have a place to live and are able to afford it. The employee also checks
if the place that they are living in is within the budget of the house rent
salary that is provided to them.
Usually,
the entire amount of money that is provided
in the house rent allowance is exempted for tax completely or partially depending on the receipts for
house rent that is provided by the employee. The house rent receipts are an
important way of confirming that the house rent
allowance that is provided to employees is being used by them. This serves as proof and can be added to one’s income tax form in order to avail the HRA return claims. The
HRA exemption provides employees with more on their salary than what they
already have.
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