If you are a salaried person and live in a rented house, then you can get exemption on income tax. Salaried people get House Rent Allowance (HRA). House rent allowance is a part of the salary structure of most employees. Though it is a part of your salary, HRA is not fully taxable unlike basic pay.
Actually, house rent allowance is an allowance and it is given by the employer to the employee to pay the house rent. HRA is exempted under section 10 (13A) of the Income Tax Act, 1961, subject to certain conditions. The taxable income of a salaried person is calculated after deducting HRA. This helps the employee to save tax. If an employee is residing in his house and does not pay rent for any house, then HRA will be fully taxable.
Who can avail HRA exemption?
The benefit of tax exemption in HRA is available only to salaried individuals (opting old tax regime). Along with this, HRA should be part of their salary structure and living in a rented house. People doing their own business do not get the benefit of this.
How much tax exemption is available?
Tax exemption has been prescribed for HRA. The benefit of HRA tax exemption is up to 50 percent of the basic salary for those living in a metro city and up to 40 percent of the basic salary for those living in a non-metro city. Apart from this, 10 percent of the annual income is also used to pay the house rent, its benefit is also available. The tax benefit is available to the person only for the period in which he has been living in a rented house.
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