House Rent Allowance Under Section 10(13A) of the Income Tax Act

What Is House Rent Allowance (HRA)?

House Rent Allowance (HRA) is a component of a salaried individual's income provided by employers to cover housing expenses. Under Section 10(13A) of the Income Tax Act, 1961, HRA can be partially or fully exempt from taxes, subject to certain conditions.

Eligibility Criteria for HRA Exemption under Section 10(13A) 

To qualify for HRA exemption under Section 10(13A), the following criteria must be met: 

• Salaried Individual: The exemption is available only to salaried individuals receiving HRA as part of their salary package. 
• Rented Accommodation: The individual must reside in rented accommodation and pay rent for it. 
• Proof of Rent Payment: Valid rent receipts or a rental agreement should be maintained as evidence of rent payment. 

Documents Required to Claim HRA

To claim HRA and enjoy tax benefits on your rent payments, make sure you have the following documents ready: 

• Rent Receipts
• Rent Agreement
• PAN of the Landlord (mandatory if annual rent exceeds Rs.1,00,000)
• Proof of Rent Payment
• Employee Declaration/Form for HRA Claim

Calculation of HRA Exemption: 

The amount of HRA exemption is the minimum of the following three amounts: 

• Actual HRA Received: The HRA amount provided by the employer. 

• 50% of Salary (for Metro Cities) or 40% of Salary (for Non-Metro Cities): 

  • For individuals residing in metro cities (Delhi, Mumbai, Kolkata, Chennai), 50% of salary 
  • For those in non-metro cities, 40% of salary 

• Actual Rent Paid minus 10% of Salary: The excess of rent paid over 10% of salary. 

Note: For HRA calculation purposes, 'salary' includes basic salary, dearness allowance (if it forms part of retirement benefits), and commission as a fixed percentage of turnover achieved by the employee. 

Example Calculation:

Assume the following details for an individual residing in a non-metro city: 

• Basic Salary: Rs.30,000 per month 
• Dearness Allowance (DA): Rs.5,000 per month 
• HRA Received: Rs.12,000 per month 
• Rent Paid: Rs.15,000 per month 

Calculations: 

• Actual HRA Received: Rs.12,000 per month 
• 40% of Salary: 
  • Monthly Salary = Basic Salary + DA = Rs.30,000 + Rs.5,000 = Rs.35,000 
  • 40% of Monthly Salary = 0.40 × Rs.35,000 = Rs.14,000 
• Actual Rent Paid minus 10% of Salary: 
  • 10% of Monthly Salary = 0.10 × Rs.35,000 = Rs.3,500 
  • Excess of Rent Paid over 10% of Salary = Rs.15,000 – Rs.3,500 = Rs.11,500 

The minimum of the above three amounts is Rs.11,500. Therefore, the monthly HRA exemption is Rs.11,500. 

Important Considerations:

• Documentation: Maintain rent receipts and rental agreements as proof of rent payment. If the annual rent exceeds Rs.1 Lakh, the landlord's PAN may be required. 
• Multiple Residences: If residing in different cities during the year or if there are changes in salary, rent, or HRA, calculate the exemption separately for each period. 
• Own Property: Individuals owning a house can still claim HRA exemption if they reside in rented accommodation elsewhere. 
• Section 80GG: Self-employed individuals or those not receiving HRA can claim a deduction for rent paid under Section 80GG, subject to specific conditions. 

Benefits of Section 10(13A) for Taxpayers

If you are a salaried individual living in rented accommodation, Section 10(13A) of the Income Tax Act, 1961, can help you save on taxes. Here’s how: 

• Reduces taxable income by exempting a portion of your House Rent Allowance
• Taxpayers residing in metro cities can claim higher exemptions
• Applies even when paying rent to parents, as long as you have proper documentation, such as rent receipts and agreement

HRA Exemption Limits: Metro vs. Non-Metro Cities

House Rent Allowance (HRA) varies based on the city in which an employee resides. Employees living in metropolitan cities are typically eligible for HRA amounting to up to 50% of their basic salary, while those residing in non-metro cities are entitled to up to 40% of their basic pay. Additionally, in cases where no dearness allowance or commission is paid, HRA is generally structured at around 40% to 50% of the basic salary. 

Section 10(13A) vs. Section 80GG: HRA for Salaried and Self-Employed

The Income Tax Act provides two separate provisions to individuals who live in rented accommodation — Section 10(13A) and Section 80GG. 

Section 10(13A) applies to salaried employees who receive HRA from their employer. To claim this exemption, the employee must be paying rent for residential accommodation. The tax-exempt portion of HRA is calculated in one of the following ways:  

• The total House Rent Allowance actually paid by the employer 
• The rent paid after deducting 10% of the employee’s basic salary 
• 50% of basic salary in the case of a metro city, or 40% of basic salary for non-metro cities.  

The lowest of these values is allowed as an exemption. Employees are required to submit rent receipts or supporting documents to their employer for the exemption to be considered while computing taxable income. 

Section 80GG, on the other hand, is meant for individuals who do not receive HRA as part of their salary. This provision is commonly used by self-employed individuals. Under this section, a deduction can be claimed for rent paid, subject to specified conditions, such as: 

• You are self-employed or employed in a salaried role that does not include House Rent Allowance as part of your pay structure. 
• Neither you, your spouse, nor your minor child owns a residential property in the city where you currently reside or are employed. 
• If you own a residential property in another location, it must not be claimed as a self-occupied house. 
• You are paying rent for the residential accommodation in which you live.