Understanding Tax Deductions on House Rent Allowance

Hello and welcome to Part 2 of the income tax education series brought to you by H&R Block, the global leader in filing income tax returns. Today we will cover house rent allowance. So, can you get a tax relief on the house rent that you pay?

The answer is Yes. You do get relief from your taxes on the house rent. You get an allowance called house rent allowance from your employer to meet the house rent expenses. It is a part of the annual salary and the Income Tax department provides an exemption from taxation on this allowance. The calculation for the amount exempt from HRA is the least of the following:
  1. Allowance actually received Rent paid in excess of 10% of basic salary or
  2. 50% of basic salary For all metro cities of Mumbai/Kolkata/Delhi/Chennai and 40% For all other cities
Example: Considering that you stay in Mumbai a metro city
If you earn a basic salary of 15,000 then your HRA component will be Rs. 7,500 i.e. 50% of your basic salary. This is because it is calculated based on these exemption limits. Now suppose you pay a rent of Rs. 10, 000 per month the HRA exemption can be calculated as follows

Allowance actually paid – Rs. 7,500 x 12 = Rs. 90,000
Rent paid in excess of 10% of salary – 10,000 x 12 – 10% of 15,000 x 12= Rs. 1,02,000
50% of basic salary – 15,000 x 12 x 50% = Rs. 90,000

The minimum of this is Rs. 90,000 and hence that is the amount of HRA that is exempt from tax and hence from your annual salary.

At H&R Block we make sure that we calculate the deductions accurately and you receive the maximum benefits.

I hope you found this useful. If you have any further questions on this topic, please feel free to ask us using #AskBlock.
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