In our previous post, we had discussed about how you can avail HRA and tax can be exempted in your property. We shall now understand this with the help of the following example:
Consider an employee who resides in Mumbai. He pays rent of Rs. 20,000 per month and his salary is divided into the following components:
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- Basic pay: Rs. 50,000 per month
- Dearness Allowance or DA is Nil.
- HRA is Rs. 20,000 per month which is 40% of the Basic Pay
The exempted amount of HRA from the above mentioned details will be the least from these figures where HRA is Rs. 20,000, Rent above 10% of Basic= Rs. 15,000 (20000-5000) and 50% of the Basic Pay= Rs. 25, 000.
Out of these the least is that of the Rent above 10% of Basic i.e. Rs. 15,000. And hence, in this example, the person can avail HRA tax exemption of Rs. 15,000 per month out of the total HRA that is Rs. 20,000 per month.
Therefore, the net taxable portion of the HRA would only be Rs. 60,000 per year.
Net taxable portion of the HRA = Total HRA received per year – HRA tax exempted per year
It is important to note that the house rent allowance can be claimed if the following conditions are fulfilled:
- The person is an employee and is salaried
- He/she receives HRA as a part of his salary
- He/she is not a resident of the same city where he/she has his property
- He/she pays the rent of the house that he is staying in as a tenant and has a valid agreement of the same
The HRA tax exemption is done based on monthly or yearly basis depending upon whether the above mentioned clauses remain same throughout the year or vary during the year.
Read More:
1) Confused how home loans can get you Tax benefits?
2) Understanding EMI calculations
3) EMI: Evaluate, Manage and Impliment?
Read More:
1) Confused how home loans can get you Tax benefits?
2) Understanding EMI calculations
3) EMI: Evaluate, Manage and Impliment?
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