Hi Srikanth,
My rent is almost half of my HRA. Can you suggest some ways to reduce the taxes on HRA? I already have PPF investment for Section 80C tax exemption.
1 Answers
Hi,
The tax-exempt portion of the HRA is actually the minimum of the following:
a) Actual HRA received from employer
b) 50 percent of the 'salary' if the accommodation is in the metro cities (Delhi, Mumbai, Chennai, Kolkata) or else 40 percent for other cities
c) Excess rent paid annually over 10 percent of the annual 'salary' . So, above are the possible conditions that need to be considered. You may kindly go through below article for the list of Tax saving options under different Sections for FY 2018-19 ; Income Tax Deductions List FY 2018-19 | List of important Income Tax Exemptions for AY 2019-20
a) Actual HRA received from employer
b) 50 percent of the 'salary' if the accommodation is in the metro cities (Delhi, Mumbai, Chennai, Kolkata) or else 40 percent for other cities
c) Excess rent paid annually over 10 percent of the annual 'salary' . So, above are the possible conditions that need to be considered. You may kindly go through below article for the list of Tax saving options under different Sections for FY 2018-19 ; Income Tax Deductions List FY 2018-19 | List of important Income Tax Exemptions for AY 2019-20
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Hello Harleen,
Actual HRA is calculated on three basis concept:
The amount of HRA received from the employer.
Actual rent paid less (10%) of the basic salary.
If an employee living in the metro (50% of salary) and for Non-metro (40% of salary).
After calculation in all three scenarios, the amount comes least will be exempted u/s 10(13A).
For better transparency lets take an example:
Basic salary: ₹ 30000
HRA: ₹ 13000
Convenience: ₹ 2000
Special allowance: ₹ 3000
Medical: ₹ 1250
LTA: ₹ 5000
TOTAL EARNING: ₹ 54250
Taking the above example we will work on all three scenarios: (As I am living in Non-metro, eligible for 40% of basic salary)
Scenario A – The amount of HRA received from the employer – ₹ 13000/month i.e. 13000X12 (months) = ₹ 156000 per annum.
Scenario B – Actual rent paid less (10%) of the basic salary – 10% of basic salary, 10% of ₹ 30000 = ₹ 3000 per month i.e. ₹ 36000 per year, actual rent paid ₹ 10,000 per month i.e. ₹ 1,20,000. The result would be ₹ 120000 – ₹ 36000 = ₹ 84000.
Scenario C – 40% of the basic salary i.e. 40% of ₹ 30000 = ₹ 12000/month, ₹ 1,44,000 per year.
In all the above scenario, ₹ 84000 is exempted, because of the least amount, and rest amount i.e. ₹156000 – ₹84000 = ₹ 72000 is taxable.
Now its come to you, what to select.
https://financialcontrol.in/exemption-of-hra-house-rent-allowance-u-s-1013a/