House Rent Allowance?

What do mean by House Rent Allowance? House Rent Allowance also known as HRA is given by employer to its employee as a part of their salary. This type of allowance proves to be beneficial for an employee as it reduces the tax liability of employee. Employee can get deduction upto 50% of Salary or @40% of salary depending upon the states in which he resides. Employee can only get deduction if he lives or resides in a rental accommodation.

Employers give financial assistance to their employees by giving them Rent allowance. If an employee stays in his or her house then such tax deduction in regards to House Rent Allowance would not be allowed to him or her.

The amount of Tax Deduction for House Rent Allowance is calculated by considering the below listed three provisions. Lowest of the below mentioned amount will be considered as the amount eligible for deduction :

  1. The actual rent that is paid should be less than 10% of the basic salary.
  2. In case you’re staying in a metro, 50% of the basic salary and 40% if you live in a a non-metro city.
  3. The actual amount allotted by the employer as the HRA.

For the purpose of determining what percentage would be applicable on him or her in 2nd provision depends upon the states in which he or she resides. For 50% deduction, he must be living in metro cities. Such metro cities are Delhi, Mumbai, Chennai and Kolkata. Rest states will be considered as the non metro cities and are eligible for 40% deduction.

What if Employee stay with his or her parents would they be eligible for tax deduction ?

In case employee stays with his or her parents, he or she is eligible to pay rent to their parents and collect a receipt for HRA claim. However, similar rules don’t allow you to pay rent to your spouse and claim a tax exemption.

Do home loan interests help me in claiming HRA and deduction on home loan interests?

In a certain situation, where you own a house, but still choose to stay in a rented accommodation because of any particular reason, you can claim your house rent allowance and exemptions on the home loan interest at the same time.

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