HRA Income Tax deduction - Exemption Limit

HRA stands for Housing Residence Allowance. Everybody whose salary package includes HRA is potentially eligible for HRA. Most, or I think all government employees have HRA as part of their salary package. In order to get HRA not only must your salary package mention about it, but you must also be be paying rent for your accomodation. After all, HRA is allowance for Housing Rent. Are you eligible for HRA? Read this post to find out how you can claim tax deduction for HRA and the maximum tax exemption limit allowed.

You can get HRA only if you are paying rent for your housing more than 10% of your salary. In most cases, the rent, especially in cities is well above salary. For the purpose of this discussion on HRA, salary means your basic + dearness allowance.

The best part is that you can deduct HRA from your taxable income ! The amount of tax deduction you can claim for HRA is the smallest amount of the following three items:

  1. HRA recieved. How much HRA you recieve will depend on your salary package. Refer your latest pay slip to check the exact amount of HRA recieved.
  2. 40% of your Salary (i.e. Basic + DA). If you are in Mumbai, Delhi, Chennai or Kolkata then it is 50% of your salary.
  3. Rent Paid in excess of 10% of your salary. (i.e. Rent - 10% of (Basic+DA)).
The smallest of the above amounts will be tax exempt part of HRA. The remaining part of HRA will be taxable.

Example of HRA Tax deduction and exemption limit
Suppose your
  1. Basic + DA is Rs. 20,000/-. per month.
  2. The rent your pay is Rs. 10,000/- per month.
  3. HRA you recieve is Rs. 12000/- per month.
Then the smallest of the above amount, i.e. Rs. 10,000 is tax exempt. The remaining part of your HRA, i.e. Rs. 2000 in this example, is taxable.

Additional important Facts about HRA
- You cannot claim rent paid to your spouse for HRA tax deduction. You can however claim rent paid to your parents for HRA tax deduction. Thus if you are living with your parents, it is possible to 'show' that you pay rent to your parents (you may have to get reciepts as proofs of rent paid) and claim HRA tax deduction.

Note that the Indian Income Tax Act allows several provisions for tax relief coming from your housing. For e.g. you can claim tax deduction for Interest paid on housing loan under Section 24, you can claim tax deduction for principal part of housing loan under Section 80C, Rent Paid under Section 80GG (when you do not get HRA). Be sure to take benefit of one of these provisions if it applies to you and consider it accordingly in your tax planning. Little attention to tax laws may save you a lot of Tax.

  • Income Tax Slabs India - Financial Year 2008/2009 and 2009/2010. The IT slabs for 2009/2010 are the same as the slabs in 2008/2009.
  • Income Tax Calculator - 2008/2009 (also good for A.Y. 2009/2010 since the tax slabs are unchanged for 2009/2010). This Income Tax Calculator is in Excel Spreadsheet format.
  • India Income Tax deductions - Various Income Tax deductions under section 80C, section 80D, section 80DD, section 80G, section 80GG, section 80E, section 24, etc. and their max. tax exemption limits allowed under the Indian Income Tax Act discussed in this post. All Indian IT deductions in one single post.
  • Tax deduction under Section 80C: The most common income tax deduction for Indians discussed in detail. Use this for your personal tax planning and save upto Rs. 33,000 Income Tax.
  • How to pay your Indian Income Tax online?
  • How to check your Income Tax Refund Status online?
  • Apr 8, 2009

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