HRA and tax benefits: A few things to know

Updated: Monday, April 29, 2013, 10:19 [IST]

Individuals are often confused on the manner of HRA calculation for computing tax benefits and it's certainly confusing given that it could vary from city to city. Those who pay house rent are eligible for tax deduction under Section 10(13A) of the Income Tax Act.

Your house rent allowance (HRA) would depend on a few things including the actual rent paid, your salary and the city you reside in. If you reside in Mumbai, Delhi, Kolkata or Chennai it is calculated on 50 per cent of your basic salary, while for other cities it is 40 per cent. Wonder why a city like Bengaluru has now been allowed 50 per cent.
Now, apart from the city, the second important criteria is that you should stay in a rented house. Remember, that the house should not be owned by you. You have to submit proof of receipts in order to claim

One must also remember that if you have a house of your own and are paying principal and interest on home loan, you can claim exemption on that as well. This means that you can avail tax benefits on your home loan, as well as tax benefits on house rent allowance.

Remember, that salary for the purpose of HRA calculation would include basic salary, dearness allowance and commissions as well.

It's important to note that the period in which the HRA is actually received from the employer, must necessarily pertain to the period in which the employee actually pays rent for his accommodation. In case HRA is received for a period in which no rental accommodation is occupied by the employee, exemption cannot be claimed.

Once again keep proof's, including those of your receipts, as your employer might want to see them.

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