Introduction
HRA is an allowance provided by an employer to their employees as a component of their salary, to meet their expenses for renting a house. It is a beneficial allowance for employees who have to live in rented accommodations in the city where they work.
The HRA is a tax-free allowance up to a certain limit, provided that certain conditions are met. In this blog, we will discuss the conditions for HRA exemption calculation.
The first condition is that the employee must be receiving HRA from their employer as a part of their salary. The HRA must be paid by the employer to the employee to meet their expenses for renting a house.
The second condition is that the employee must be living in a rented house. The employee cannot claim HRA exemption if they are living in their own house or if they do not pay rent for the house they are living in.
The third condition is that the employee must actually pay rent for the house they are living in. The employee cannot claim HRA exemption if they are living in a house that is provided by their employer free of cost.
The fourth condition is that the employee must not own any residential property in the city where they work. If the employee owns a residential property in the city where they work, they cannot claim HRA exemption.
The fifth condition is that the employee must submit the rent receipts to their employer. The employee must provide the rent receipts for the entire financial year to claim HRA exemption. The rent receipts must contain the details of the rent paid, the name of the landlord, and the period for which the rent has been paid.
The sixth condition is that the amount of HRA exemption that can be claimed by the employee is limited to the least of the following:
The actual amount of HRA received by the employee from their employer
The amount of rent paid by the employee minus 10% of their basic salary
40% of the employee’s basic pay if they reside in a small town, or 50% of their basic pay if they reside in a metropolis (Mumbai, Delhi, Kolkata, or Chennai).
non-metro city.
For example, if an employee receives a monthly HRA of Rs. 15,000, pays a monthly rent of Rs. 20,000, and has a basic salary of Rs. 50,000, the least of the above conditions will be 50% of the basic salary, which is Rs. 25,000. Therefore, the maximum HRA exemption that can be claimed by the employee will be Rs. 15,000.
In conclusion:
To claim HRA exemption, an employee must fulfill certain conditions such as receiving HRA from their employer, living in a rented house, paying rent for the house they are living in, not owning any residential property in the city where they work, submitting rent receipts to their employer, and limiting the HRA exemption to the least of the specified conditions. Understanding these conditions will help employees claim HRA exemption and reduce their tax liability.