Union Budget 2019 India: Union budget 2019 will be presented in the Parliament in less than 24 hours. Salaried individuals are expecting the new FM, Nirmala Sitharaman, to extend the tax benefits via the HRA component. House rent allowance (HRA) is the most integral part of the salary component and is generally provided to the employees to meet the cost of rented accommodation near the place of employment. With inflation rising constantly, paying house rent in India can poke a hole through your monthly inflow. The salaried class are expecting the government to extend more tax benefits for rented accommodation.
HRA is an allowance/benefit, which employees can claim through submission of rent receipts to their employer. Employees who receive HRA as a component of their salary can claim HRA exemption in respect to their rental payments. The exemption is calculated on the basis of the basic salary of an employee.
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The deduction available is the least of the following amounts:
a. Actual HRA received;
b. 50% of [basic salary + DA] for those living in metro cities (40% for non-metros); or
c. Actual rent paid less 10% of basic salary + DA
For example:
Vanitha lives in Pune at a rent of Rs 20,000 a month. She receives HRA of Rs 15,000 a month. Her basic salary is Rs 30,000 a month. Let us calculate the HRA exemption for the FY 2018-19:
1. Rs 15,000*12 = Rs 1,80,000
2. 40% of (Rs 30,000*12) = Rs 1,44,000
3. (Rs 20,000*12) 2,40,000 – 36,000 (10% of Rs 3,60,000) = 2,04,000
The annual basic salary of Vanitha would be Rs 3,60,000. The annual rent paid is Rs 2,40,000. The annual HRA received would be Rs 1,80,000. The HRA exemption is allowed at lower of the above i.e., Rs 1,44,000. Here an employee has to furnish the PAN of the landlord for the purpose of claiming HRA exemption.
For an employee who is residing in their own accommodation, the HRA received is fully taxable. Also, in case an employee is not paying any rent, the HRA received is fully taxable. For example, if Vanitha is staying with her parents in a residential house owned by her parents, the HRA received is fully taxable.
At present, an employee residing and working in the metropolitan cities of Delhi, Mumbai, Kolkata and Chennai can claim a deduction for HRA calculated at 50% of the basic salary. But employees working and residing in other cities such as Hyderabad, Bengaluru, Pune, Ahmedabad, Noida and Gurgaon are entitled to claim a deduction for HRA calculated at 40% of the basic salary. The cost of accommodation in these non-metro cities is high, at places even higher than the cost of accommodation in the 4 metro cities. The government should take note of the fact and bring in more cities in the ambit of metros.
The cost of rental accommodation forms a significant part of the cost of living in any city. The rental cost is on par for both metro and non-metro in case of cities like Pune and Bangalore. Hence, it is suggested that the government should include such non-metro cities under metro cities for the purpose of conferring HRA benefits to taxpayers.
Employees also incur expenses on shifting of residence in case of transfer from one city to another. Employees incur additional expenses such as expenses for moving your household, furniture, brokerage paid for a new house, expenses incurred on finding a new school for your children etc. Any allowance or amount paid by an employer to reimburse these expenses are taxable as salary in the hands of the employee. It is suggested that these expenses are also allowed to be claimed under HRA exemption.
(By Archit Gupta, Founder & CEO ClearTax )
