House Rent Allowance (HRA) is a component of an individual’s salary to meet the expenses of renting an accommodation. HRA is not a fully taxable component of a person’s salary, as there are exemptions provided under Section 10 (13A) of the Income Tax Act, 1961. As HRA is deductible from the total income of a person before arriving at the taxable income, it helps in tax savings.
The exemption for HRA is the minimum among:
- 50% of the individual’s salary in metros and 40% of the individual’s salary in non-metros
- Rent paid over 10% of the individual’s salary
- HRA received
Individuals who do not have a HRA component in their salary but pay rent may also claim for tax relief under Section 80(GG) of the Income Tax Act. For the purpose of calculating exemption of HRA under Section 80 (GG), total income is considered the gross total income of the individual minus long-term capital gains (LTCG).
The exemption provided under Section 80 (GG) is the least among:
- 25% of the total income
- Rent paid in excess of total income
- Rs. 5,000 per month.