Jul 05, 2013 04:31 PM IST | Source:

Here's how to avail tax benefits on house rent allowance

Financial advisor Arnav Pandya discusses on how to avail tax benefits on house rent allowance. He also focuses on knowing the procedural terms related to the entire working.

Arnav Pandya

House Rent Allowance (HRA) is a benefit that is provided by many employers across major cities across the country. The tax working for this purpose can ensure that a part of the overall allowance received by the individual would be tax exempt in their hands.

While the exact working for this tax benefit is a significant factor, what also needs to be seen is the various procedural terms related to the entire working. This is important for the proper benefits to be available. Here is a look at the issue in detail.


When an employee gets a HRA, there has to be a working undertaken to see the extent of this receipt that would be tax free in their hands. The working would require that the least of the following three would be allowed as a deduction

One is 50 percent of salary where the residential house is situated at Mumbai, Kolkata, Chennai and Delhi or 40 percent of the salary where it is situation at any other place.

Two; the HRA actually received and three, the excess of rent paid over 10 percent of salary. But in these calculations it is the nature of the various terms that are important for the individual to consider.


The definition of salary for this purpose would include basic salary and dearness allowance where the terms of the employment provides for such an allowance. It will also include commission that is paid as a fixed percentage of the turnover that is achieved by the employee.

However, all the other allowances and perquisites would not be included and hence would have to be kept separate from the working. This sets the tone for the basic inclusion of the various figures where the salary is being considered.

Nature of consideration

There is also the question of the total amount of salary that would be considered for the year. A change in the manner of the calculation on this point would impact the overall benefit that the individual would be able to get.

This is the reason why the nature of the salary needs attention. The salary has to be considered on due basis so the moment that this becomes due at the end of the month then it would be included. It cannot be said that the salary has not been paid so this would not be covered.

This also brings to light another important factor. In some years, there could be a past payment that is actually received but this would not be considered for the purpose of this calculation because this is just received and is not due.


A few other factors are also needed to be present when the benefit is to be claimed. The first thing here is the conditions when the benefit for the rent will be available as a deduction.

So, if an employee lives in his own house then the benefit will be denied. Similarly, if he does not pay any rent on the house where he lives then the benefit will again be denied. Also, if the rent paid does not exceed 10 percent of the salary then the calculation will ensure that the benefit in terms of the deduction will become zero.

Usually, the benefit is to be calculated on an annual basis and the various items that are included herein would have to be looked at accordingly. There are however times when this is not possible and there are changes in the various figures then the working could be undertaken on a monthly basis.

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