Post Coronavirus, numerous organizations have permitted their representatives (employees) to work from home. Some of them have moved to their hometowns along these lines saving money on rent. Some have arranged lower rent with their proprietors. For most workers, House Rent Allowance (HRA) is an aspect of their salary structure. Even though it is a part of your salary, HRA, in contrast to an essential salary, isn't completely taxable. Subject to specific conditions, a piece of HRA is absolved under Section 10 (13A) of the Income-tax Act, 1961. The measure of HRA exemption is deductible from the all-out income before showing up at a taxable income. This causes a representative to spare tax. However, do remember that the HRA got from your manager is completely taxable if a worker is living in his own house or on the off chance that he/she doesn't pay any rent.
This tax advantage is accessible just to the salaried people who have the HRA segment as a component of the salary structure and are remaining in a rented convenience. While not renting, independently employees can't benefit from the allowance.
How is HRA calculated?
If an employee is living in a rented house/apartment and HRA is part of his/her salary, he or she can claim the paid rent as exemption. This exemption comes under the Section 10 (13A) of the Income Tax Act. The percentage of exemption depends on the actual amount you paid, your geographical locality (metro/non-metro), and the actual HRA received.
HRA Calculation For Income Tax
The taxpayer can claim the least of these 3 as HRA exemption:
1. HRA Received (Actual)
2. 50% of salary for metros or 40% of salary for non-metro cities
3. Rent paid over 10% of the basic salary
“Since the actual rent paid would be nil, the HRA received for the months when rent is not paid will be taxable in the hands of the taxpayer," says Shilpa Bhatia, Director, Direct taxes, AKM Global
Consider an individual gets ₹15,000 as month to month HRA and pays equivalent to rent. Presently, if he doesn't pay rent for nine months, during the FY 2020-21, his taxable income will go up by ₹1,35,000. On the off chance that the worker falls in the 20% tax section, the all-out tax risk will go up by ₹27,000.
However, if you are paying rent to your relative to share the weight, you can guarantee that as a tax allowance. The relative or family member accepting the sum should announce it as income and pay tax on it relying upon the tax section the individual falls in.
“In case people have shifted and are working from owned homes, then there is no payment of rent to a landlord, and hence, there is no deduction available. Consequentially, the tax liability of such a person goes up. However, at times such homes are owned by relatives, and rent at fair value is paid to them for use of the house and resources. If such is the case, then the deduction for HRA should continue to be received on the basis of such fair rent paid, even to relatives," says Vivek Jalan, partner, Tax Connect Advisory Services LLP.
In this way, do remember the extended tax obligation as you may need to pay higher taxes during the last quarter of the fiscal year on the off chance that you have not updated the HR about the same in the start of the fiscal year in April. By and large, organizations request confirmations, for example, rent receipts during January. If it isn't submitted around then, the HR will deduct the tax from the respective employee's salary.