House Rent Allowance under section 10(13A)

House Rent Allowance is received by the salaried individual. The assessee can claim deduction of house rent allowance under section 10(13A) in accordance with rule 2A of income rules.

1.What is House Rent Allowance under section 10(13A)?

House rent is a part of salary provided to employee for the expenses incurred towards rent. An assessee can claim deduction of such expenses if he stays in rented house and employees pays HRA. According to section 10(13A) assessee can claim deduction of HRA.

The calculation of HRA , have to consider following factors such as salary, actual rent paid by the employee, HRA receivable by employee, place of resident etc.

2. How much HRA exemption is available under section (13A) of the Income Tax Act?

Exemption in respect of house rent allowance is regulated by rule 2A. And least of the following is exempt from tax:

a. Amount equal to 50% of salary, where residential house is situated in Bombay, Calcutta, Delhi, Madras (and amount equal to 40% of salary where residential house is situated in any other place).

b. HRA received by the employee in respect of the period during which the rental accomodation is occupied by the employee during the previous year.

c. The excess of rent paid over the 10% of salary.

Further in order to claim exemption rent must actually be paid for the premises assessee occupy.And Premises must not be owned by the assessee.

3. Points to be noted for calculation of House rent allowance exemption under section 10(13A):

1. Salary for the purpose of computation of exemption means basic salary and including dearness allowance(DA) if terms of employment so provides .And it includes commission based on fixed percentage of turnover achieved by an employee as per the terms of the contract of employment.
2. Exemption u/s 10(13A) is not available if employee resides in his own house or if employee does not inure any expenditure on payment of rent.
3. Conversely , if the house in which the employee resides is not owned by him and he pays rent for it, he can claim exemption u/s 10(13A). Exemption is available even if the house is owned by a close relatives (may by wife or husband , father or mother) and for which rent is regularly paid.
4. to avail exemption u/s 10(13A) , there is no requirement that the employee should not own a house. If an employee resides in a rented property, he can claim exemption u/s 10(13A) even if he owns a house. (in the same city or different city).

4. Example for calculation of House rent allowance exemption under section 10(13A):

1.Mr. Sahil,who resides in calcutta , gets Rs. 6,00,000 as basic salary.He receives Rs. 1,70,000 as house rent allowance . Rent paid by him is Rs. 1,80,000. Find out amount of HRA exemption u/s 10(13A).

Solution

Least of the following is exempt from tax u/s 10(13A)

1. 50% of basic salary i.e. Rs. 3,00,000 (6,00,000*50%)
2. HRA received by Mr. sahil is Rs. 1,70,000
3. Rs. 1,20,000 being excess of rent paid over 10% of salary { i.e. Rent paid is Rs. 1,80,000- 10% of Rs. 6,00,000 (i.e. salary)}

Hence, in the above case Rs. 1,20,000 is exempt from tax .

2. Mr. Akash resident of Bengaluru, receives Rs.20,00,000 as basic salary . In addition ,he gets Rs. 6,00,000 as dearness allowance (forming part of the salary), 3.5% commission on sales made by him (sales made by Mr. Akash during PY 2022-23 is Rs. 80,00,000) and Rs. 2,40,000 as house rent allowance. He, however pay Rs. 2,80,000 as house rent . Determine the quantum of HRA exempt from tax for the A.Y. 2023-24.

Solution

Here, salary for computation of HRA is Basic+DA+comission

i.e. Rs. 20,00,000+Rs. 6,00,000+Rs.2,80,000 =Rs.28,80,000

Least of the following is exempt from tax u/s 10(13A)

1. 40% of basic salary i.e. Rs. 11,52,000 (28,80000*40%)
2. HRA received by Mr. Akash is Rs. 2,40,000
3. Nil, being excess of rent paid over 10% of salary { i.e. Rent paid is Rs. 2,80,000-10% of Rs.28,80,000 (i.e. salary)}

As least of the following is Nil , the entire HRA is taxable for Mr. Akash.

Refer : Salary Income https://taxandfinanceguide.com/calculation-of-income-from-salary-new-tax-regime/