How to save tax with HRA Exemption

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House Rent Allowance (HRA) is a component of salary given by employer to employee to meet the expenses related to renting of residential accommodation.  The HRA paid is taxable under head ‘Income from Salaries‘ to the extent it is not exempt under Income Tax Act.

  •  HRA Received – HRA Exempt = Taxable HRA

HRA Exemption under Income Tax

HRA is exempt under income tax subject to the lower of the below three:

  • HRA Received
  • Rent paid – 10% of salary
  • 50% of salary (40% in case of non metro cities)

 

Thus, HRA exemption depends on four things

  • Salary of the employee
  • House rent allowance
  • Rent paid
  • Place where house is taken on rent

When these four are same throughout the year, the exemption is to be calculated on “ANNUAL” basis. When, however, there is a change in respect of any of the above factors will make the calculation to be done on “MONTHLY” Basis.

  • Salary here means Basic+ D.A (Dearness Allowance) + Commission based on fixed % of turnover achieved by an employee.

Example:

Let us say, you are residing in Mumbai and paying rent of Rs 20,000 p.m. and your salary package is as follows:

  • Basic — Rs. 50,000 p.m.
  • DA — Nil
  • HRA — Rs. 25,000 p.m. (50% of basic)

Now, the exempted amount of HRA will be least of the following three figures:

1. HRA received i.e., Rs. 25,000
2. Rent above 10% of basic i.e., Rs. 15,000 (Rs. 20,000 – Rs. 5,000)
3.  * 50% of basic i.e., Rs. 25,000

HRA Exemption = lesser of above three = 15,000 Rs per month

Taxable HRA = Total HRA – HRA Exemption = 25,000 – 15,000 = 10,000 per month = 120,000 Rs. (annual amount)

(*50% because accommodation in metro city i.e.. Mumbai).

Rent Receipt / PAN / TDS requirements  for HRA Exemption

  • PAN of landlord to be provided if annual rent paid exceeds 1 lakh rupees.
    • If landlord does not have PAN then provide name, address of landlord to employer
    • Rent receipts to be submitted by all salaried employees paying rent more than 3,000 Rs per month
    • For rent up to 3,000 Rs. per month, no rent receipts required
    • Rent Receipt should be duly signed with one rupee revenue stamp
    • Assessee other than individuals or HUF liable to tax audit u/s 44 AB are required to deduct TDS @ 10% from rent paid to landlord, if rent paid  is in excess of Rs. 180,000 during the financial year.
      • So if an assessee is an individual or an HUF and does not have business income exceeding 1 crore or professional income exceeding 40 lakhs then they do not have to deduct any TDS irrespective of amount of rent paid.
      • Also, if rent paid below Rs. 1,80,000, no TDS to be deducted

Other conditions

  • HRA not available if the residential accommodation in consideration is owned by assessee
  • HRA not available if no expenditure incurred by assessee for payment of rent
  • Salary is to be taken on due basis for calculating HRA.

HRA and Housing Loan Interest Exemption

  • If you are staying in own house then
    • HRA cannot be claimed
    • Housing loan interest deduction can be claimed
  • If you have a house which is under construction
    • HRA can be claimed
    • Housing loan interest deduction cannot be claimed
  • If your owned accommodation and rented accommodation are in different cities (whether rented or taken as self occupied)
    • HRA can be claimed
    • Housing loan interest deduction can be claimed

How to structure HRA Allowance in salary package for maximum exemption

Housing Rent Allowance (HRA)

HRA should be 50% of Basic salary for getting maximum HRA exemption.  However if you are working in non metro city then HRA should be structured as 40% of Basic Salary

Example

If total salary package is Rs 9,00,000 then it is advisable to structure Basic salary as 6,00,000 and HRA as 3,00,000 (50% of basic salary).

Ideal Rent paid  for HRA Exemption

HRA exemption is maximized when rent paid as declared to employer is HRA + 10% of basic salary.

Example

If salary is 8,00,000 and HRA is 1,00,000 then the rent at which HRA would be maximized would be 1,00,000 + 80,000 =1,80,000 = 15,000 Rs per month.

In this case if we calculate HRA Exemption:

  • HRA received = 1,00,000
  • Rent paid – 10% of salary = 1,80,000 – 80,000 = 1,00,000
  • 50% of salary = 4,00,000

HRA exemption = lower of the three = 1,00,000/- Rs

Taxable HRA = HRA paid – HRA Exemption = 1,00,000 – 1,00,000 = NIL

Staying at family house

If you are staying in a family home, then you can claim HRA Exemption on rent paid to parents/ grandparents. However they will need to declare it in their income tax return as rental income.

If the house is owned by wife it is not advisable to claim rent paid even though technically you can claim (as you have paid rent and do not own the house). As husband and wife typically do not have a commercial relationship, income tax office may not allow it thus leading to litigation.

Not salaried and Paying Rent

For those who do not have HRA allowance(mainly non salaried employees), deduction for rent paid can be claimed u/s 80 GGA which is discussed in the below article.

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This article is brought to you by onlineITreturn.com

For a detailed advise, you can contact info@onlineitreturn.com or visit www.onlineitreturn.comOnlineITreturn.comis an online portal for efiling your income tax return and advise, consultancy on taxation matters including Service Tax, TDS. All taxation matters are handled by Chartered Accountants.

TDS on Interest on securities debentures-Sec 193

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Barring certain exception, tax has to be deducted at source on payment of interest on securities to residents.

Key Points – TDS on interest on securities

 

Who is liable to deduct TDS? Any assessee be it Individual, company, HUF , Partnership etc.
For whom should TDS be deducted? From Resident assessee (individual, company, HUF etc)  to whom interest is paid
At what rate should tax be deducted? For AY 2014-15 & AY 2015-16 TDS to be deducted @ 10%
When should TDS be deducted TDS should be deducted at the

  • at the time of credit of such income to the account of the payee OR
  • at the time of payment thereof in cash  OR
  • by issue of a cheque or draft or by any other mode,  whichever is earlier

 

 

Interest on Securities Exempt from TDS provision u/s 193

 

In the below cases TDS on securities will be exempt from TDS u/s 193

  1. Interest payable on 4 % National Defence Bonds, 1972 held by Resident Individual
  2. Interest payable to an individual on 4 % National Defence Loan, 1968,
  3. Interest payable to an individual on 4% National Defence Loan, 1972
  4. Interest payable on National Development Bonds
  5. Interest payable on 7-Year National Savings Certificates (IV Issue)
  6. Interest payable on any security of the Central Government or a State Government:
  7. If interest does not exceed 10,000 Rs.
    1. Interest payable on 6% Gold Bonds, 1977 held by resident individual
    2. Interest payable on 7% Gold Bonds, 1980 held by resident individual
  8. If interest does not exceed 10,000 Rs.
    1. Interest payable on 8% Savings (Taxable) Bonds, 2003
  9. If interest does not exceed 5,000 Rs. & paid by a/c payee cheque
    1. Interest payable to a resident individual being interest on debentures listed on a recognised stock exchange in India in accordance with the Securities Contracts (Regulation) Act, 1956 (42 of 1956), and any rules made there under
  10. Interest payable to the Life Insurance Corporation of India
  11. Interest payable to the General Insurance Corporation of India
  12. Interest payable to any other insurer in respect of any securities owned by it or in which it has full beneficial interest;
  13. Interest payable on any security issued by a company, where such security is in dematerialised form and is listed on a recognised stock exchange in India in accordance with the Securities Contracts (Regulation) Act, 1956 (42 of 1956) and the rules made thereunder
  14. Any other interest notified in official Gazette by Central Govt.

 

Key Explanation to section 193

Where any income by way of interest on securities is credited to any account, whether called “Interest payable account” or “Suspense account” or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly.

 

No TDS deduction if 15 G/ 15 H certificate provided

Tax is not deductible u/s 193 if the recipient makes a declaration in Form No. 15G/15H that their total income of the previous year is less than minimum income liable to tax. 15 G is applicable for resident individuals not being senior citizens and 15 H is applicable for resident senior citizens.

 

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This article is brought to you by onlineITreturn.com

For a detailed advise, you can contact info@onlineitreturn.com or visit www.onlineitreturn.comOnlineITreturn.comis an online portal for efiling your income tax return and advise, consultancy on taxation matters including Service Tax, TDS. All taxation matters are handled by Chartered Accountants.

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