Note: This idea has been contributed by our passionate intern Harshita, with inputs from the entire team.
There is no doubt in the fact that the second best moment in the world is to see the mail that says “The salary has been credited to your account”. Some of you may argue that the second position is not the right assessment, but since am the author, my opinion will prevail ;). And for me, the best moment in the world is finding a washroom when you are in dire, uncontrollable need (No, it is not creepy!)
Well, this blog is not about judging the creepiness of our jokes or deciding upon the position of several human emotions. As you might have noticed, our job is to develop your money sense (Haw, you did not know that yet 😛 ). In keeping with our noble mission, let us quickly get to the topic for this post. So, coming back to my point on salary, it is quite dear to see that mail in your inbox. However, if you would have taken the pain of glancing through your salary slip, the first thing [again, no debate on first or second please ;)] that gets your attention is House Rent Allowance or HRA. Not to stretch this any further, let me head straight to the discussion on HRA.
Before we proceed to any analysis, let us begin with the fundamentals of HRA :
HRA is defined as an allowance paid by an employer to his employee, in order to help him/her meet the rental expenses of his/her accommodation. Therefore, the HRA is an integral part of your salary and warrants proper scrutiny before acceptance of the offer/hike etc.
Time to tax your brain (A bit only)
Though the Income Tax Department might be treacherous on many occasions, it is kind enough when it comes to HRA. The Income Tax Act of India provides for deduction of HRA, while calculating income under head ‘Income from Salary’. As I mentioned above, the HRA is a part of your salary and like the other components of salary, it is taxable under the act. However, the Act allows for certain deduction under the HRA component i.e the amount you do not have to pay tax on. This particular deduction is calculated as:
(I) Actual house rent allowance received from the employer;
(II) Actual house rent paid minus 10% of basic salary
(III) 50% of your basic salary, if you live in a metro city (40% for non-metro).
Yay! So, now you have understood the quantum of deduction available (I would suggest memorizing this schedule so that, it is handy when you require it).
However, as most of the flowery things in life come with *terms and conditions*, then why not HRA. So, here are certain T&C that you need to keep in mind when it comes to HRA.
– HRA has to be received from the employer,
– Rent has to be paid (Duh, isn’t that obvious)
– Salary means basic salary plus dearness allowance,
As you would know, India is a land that loves myths and misconceptions. Again, why not with HRA. So, let me try and bust these misconceptions:
No. There are certain benefits that are available to self-employed individuals under section 80GG of Income Tax Act, subject to fulfilment of certain conditions which may resemble HRA, but the terms cannot be used interchangeably.
2. Claiming deduction of both HRA and home loan principal/interest payments.
Smile because it’s a YES. It is possible to effect such an arrangement with a tinge of astute tax planning skills. So, this is when you can leverage such an arrangement:
Well, give a clap to yourself. You have patiently gone through the article and that too without yawning for once (See, I drink bournvita for such confidence).
You can reach out to firstname.lastname@example.org for any queries/clarifications/jokes etc.
Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy of any agency, organization, employer, or any company. Fintuned Co. LLP shall not be held responsible in any manner whatsover, for any decision/action taken by readers on the basis of the content mentioned in the article. Readers are requested to exercise their best judgement before taking any decision/action. Fintuned Co. LLP shall also not be held responsible for any copyright infringement committed by the author in the process of writing and/or publishing this article and in the event any such offence is found, cooperate with necessary authorities to take remedial action
Thank you Yuva members for organising such a fun and informative lecture. We enjoyed it a lot. Meeting and learning from Mihir Sir was really an amazing experience. And this is not only our feeling but all the students enjoyed his lecture very much and look forward to many such events.