HRA Calculation Income Tax Financial Year 20142015 (Assessment Year 2015-2016)

How HRA is calculated Section 10 (13A) of the Income Tax Act

For any employee receiving HRA from the employer is eligible for
Income Tax exemption as under, provided that expenditure on rent is
actually occurred. Consider the least of the following as tax
exemption:
(i) HRA received.
(ii) Rent paid less 10% of salary.
(iii) 40% of Salary (50% in case of Mumbai, Chennai, Kolkata,
Delhi). Salary here means Basic + Dearness Allowance, if dearness
allowance is provided by the terms of employment.

Calculation of the exemption amount

Say your Basic Salary is Rs.5000
Basic Salary = Rs. (5000*12) = Rs. 60,000/ Dearness Allowance (D.A) = Rs. (1000*12) = Rs. 12000/ House Rent Allowance (H.R.A.) = Rs. (2000*12) = Rs. 24000/ Actual Rent Paid = Rs.(2000*12) = Rs. 24000/ Let us assume you stay in a place where 40% of the Basic + D.A. is
considered to be slab for HRA. The company pays you annual HRA
of 24,000/-. The calculation then would be:
Actual HRA received (2000*12) = Rs. 24000/ Rent Paid in excess of 10% of salary ( 24000-7200) = Rs. 16800
40% of Salary = Rs. 28800/ Therefore, Rs. 16800 shall be exempt and the balance Rs. 7200 shall
be included in gross salary.
When you stay in your own house, the entire HRA received from the employer is
taxable. Thus conditions like; inclusion of HRA in the salary component, staying in
the rented house, and payment of actual rent is more than 10% of salaries are three
important requirements of getting tax benefits for HRA. Staying with parents in
parental house and paying HRA to them can qualify you for tax Exemption. But
staying with spouse and payment of rent and claiming exemption is not allowed.

Section 80D: Medical Insurance Premiums

Health insurance, popularly known as Mediclaim Policies, provides
a deduction of up to Rs.35, 000 (Rs.15, 000 for premium payments
towards policies on self, spouse and children and Rs.15, 000 for
premium payment towards non-senior citizen dependent parents or
Rs.20, 000 for premium payment towards senior citizen dependent).
Additional deduction of Rs. 5,000 for preventive health check-up.
This deduction is in addition to Rs.1, 50,000 savings under IT
deductions clause 80C. For consideration under a senior citizen
category, the incumbent's age should be 60 years during any part of
the current fiscal, e.g. for the fiscal year 2014-15, the incumbent
should already be 60 as on March 31, 2014), This deduction is also
applicable to the cheques paid by the company, and such payment is
shown as your total CTC.

PF is deducted from employees monthly pay @ 12% of basic + DA (where DA is paid).

Where DA is not paid it is restricted to basic pay.
Contribution to Pension fund from employers contribution to PF is 8.33% of 15,000/-, i.e.
Rs. 1249.5. Central Government also contribute to such pension scheme @ 1.16% of
Rs. 15,000/-, i.e., Rs. 174, taking the total contribution to EPF related pension fund
Rs. 1249.5 + Rs. 174 = 1423.5P.
Amount received from such PF is not exempt from tax in all cases. Only under the
circumstances listed below will the amount withdrawn from PF be eligible for such
exemption from tax:

If the employee has rendered continuous service with the employer for five years or more
Again, if the balance includes amount transferred from the individuals PF account
maintained by previous employer(s), then the years of continuous service rendered to
the former employer(s) would be included for the purpose of computing the five-year.
If the employee has not rendered continuous service of five years, but the service is
terminated by reason of the employees ill health or discontinuance of the employers
business or reasons beyond the control of the employee, the amount will be tax-exempt.
Another tax-exempt case is when, on the cessation of the employment, the employee
finds another job and the the accumulated PF balance is transferred to his individual PF
account maintained by the new employer.

Sl. No.

Section

Details of deduction

Limit

1.

80C

General deduction for investment

in PPF, PF, Life Insurance, ULIP,
Stamp duty on house, Fixed
deposits for 5 years , bonds etc

Maximum Rs
1,50,000 is allowed. Investment
need not be from taxable
income.

2.

80CCC

Deduction in case of contribution

to pension fund. However, it
should be noted that surrender Maximum is Rs 1,50,000. Run
value or employer contribution is concurrently with Section 80C.
considered income.

3.

80CCD

Deduction
in
respect
to
contribution to new pension
scheme (NPS) Employees of
central Government and others
are eligible

Maximum is sum of employers

and employees contribution to
the maximum: 10 % of salary,
not exceeding Rs. 50,000/-. Run
concurrently with Sections 80C,
80CCC and 80CCD.

4.

80D

Medical insurance on self, spouse

children or parents

Rs 15,000 for self, spouse &

children. Extra Rs 15,000 for
insurance on parents. IF parents are
above 65 years, extra sum should be
read as Rs 20,000. Additional Rs.
5,000 for preventive health checkup. Thus maximum is RS 40,000

5.

80DD

For maintenance including treatment or Rs 50,000. In case disability

insurance the lives of physically disabled is severe, the amount is Rs
dependent relatives.
1,00,000 to 1,25,000.

6.

80DDB

For medical treatment of self or relatives Actual amount paid to the

suffering from specified disease
extent of Rs 40,000. In case
of patient being Sr Citizen,
amount is Rs 80,000. For
physically disabled Assessee,
under section 80U deduction
is Rs. 1 lakh to 1.25 lakh.

7.

80E

For interest payment on loan taken for Actual amount paid as

higher studies for self or education of spouse interest and start from the
or children.
financial year in which he
/she starts paying interest
and runs till the interest is
paid in full.

8.

80G

Donation to Charitable Societies

100% or 50% depending on

the nature of societies.

9.

80GG

For rent paid

This is only for people not

getting any House Rent
Allowance. Maximum is Rs
2000 per month. Rule 11B is
method of computation.

10.

80GGA

For donation to entities in Only those tax payers

scientific research or rural who have no business
development.
income can claim this
deduction. Maximum
is equivalent to 100 %
of donation.

11.

80U

Deduction in respect of
permanent physical disability
including
blindness
to
taxpayer.

12.

80QQB,
80RRB

Royalty income from books Royalty income or Rs.

(other than text books) and 3, 00,000 whichever is
patents.
less.

RS 1 lakh which goes

to Rs 1.25 lakhin case
taxpayer is suffering
from severe disability.

Leave Travel Concession [Sec 10(5)]

The amount paid by the employer for the employee and
his family for travel to any place in India or for travelling
to any place in India after retirement is exempt. The
amount has to be spent on transportation either by air,
rail or road. Also, this exemption is for primary travel
between your city of stay and your destination. Other
travel expenses like taxi / cab fare, auto fare, etc. cannot
be claimed as exempt.
If you travel by rail (or road), the maximum amount that
can be claimed as exempt is the air conditioned first class
(AC I Class) rail fare to your destination by the shortest
route; or the amount spent, whichever is less, is not
taxable. If you travel by air, the maximum amount that
can be claimed as exempt is the economy class air fare to
your destination by the shortest route.

The exemption is available on the expenses for two journeys

in a block of four calendar years. The current four-year
block is from January 1, 2010 to December 31, 2013. LTA
can be given out every year, or once in every 2 or 4 years.
Many organizations also allow you to accumulate this
allowance for 2 years.
Proof of travel needs to be preserved and presented to claim
this exemption. The tickets are considered valid proof. If
you arrange travel through a hired or rental car, the receipt
from the travel agency or car rental agency is considered
valid proof. Please note that any non-transport component
(like driver allowance) is not considered for income tax
exemption.
However, many organizations along with the monthly salary
pay LTA (leave travel allowance). This is taxable with
effect from 1-4-2012.

Home loan and tax planning

Repayment of principal amount and Payment of interest
are eligible for tax benefit.
Repayment of principal amount ; Makes you eligible to claim
a deduction up to a sum of 150,000 under section 80C (It is
immaterial whether House is Let Out or Self Occupied).
Interest is eligible for deduction u/s 24(b) as follows: Self
Occupied-Maximum of Rs 200000. For Let Out it should
be Actual amount of interest payable after deducting the rent
received. It makes sense to include your spouse as a co-owner;
especially if your spouses income is taxable. This will result in
higher tax saving.

Payment of Tax on Non-monetary Perquisites by

Employer

An option has been given to the employer to pay the

tax on non-monetary perquisites given to an employee.
The employer may, at his option, make payment of the
tax on such perquisites himself without making any
TDS from the salary of the employee. The employer
will have to pay such tax at the time when such tax was
otherwise deductible i.e. at the time of payment of
income chargeable under the head salaries to the
employee.

Perquisite includes:

The value of rent free accommodation provided to the employee by

his/her employer;

The value of any concession in the matter of rent in respect of any

accommodation provided to the employee by his employer;

i.
ii.
iii.

iv.

The value of any benefit or amenity granted or provided free of

cost or at concessional rate in any of the following cases:
By a company to an employee who is a director of such company;
By a company to an employee who has a substantial interest in the
company;
By an employer (including a company)to an employee, who is not
covered by (i) or (ii) above and whose income under the head
Salaries (whether due from or paid or allowed by one or more
employers), exclusive of the value of all benefits and amenities not
provided by way of monetary payment, exceeds Rs.50,000/-.
What constitute concession in the matter of rent have been
prescribed in Explanation 1 to 4 below 17(2)(ii) of the Income Tax
Act, 1961.

IV Any sum paid by the employer in respect of any

obligation which would have been paid by the assessee.
V

Any sum payable by the employer, whether directly or

through a fund, other than a recognized provident fund or
an approved superannuation fund or other specified funds
u/s 17, to effect an assurance on the life of an assessee or
to effect a contract for an annuity.

VI With effect from 1/04/2010 (AY 2010-11) it is further

clarified that the value of any specified security or sweat
equity shares allotted or transferred, directly or indirectly,
by the employer, or former employer, free of cost or at
concessional rate to the assessee, shall constitute a
perquisite in the hand of employees.

rquisites

ursement of health club, sports club membership fees and similar facilit
o all employees would not be taxable in your hands.
s provided to you through paid vouchers, not transferable and usable only at eat
e extent of Rs 50 per meal are safe.
ursement of telephone expenses including a mobile phone actually incurred
of your employer is not taxable in your hands. Telephone facility received by Em
dence provided by employer is also not taxable in hand of employee as against
Allowance.
enditure incurred on your medical treatment or any of your dependents is exem
00 per annum as medical reimbursement subject to provision of bills. If you are p
allowance instead of reimbursement, the same is fully taxable.
nce to the extent actually incurred to meet the cost of travel on tour or
ncurred on conveyance in the performance of official duties, expenditure on help
the performance of duties, daily charges on account of absence from normal pla
r are exempt.
ement of health insurance premium by your employer for you and your fami
und: Under Section 80C, provident fund contribution deducted from the employe
exempted from tax up to an amount of Rs. 1.5 lakh or 12% of the employees sa
ce allowance for commuting between home and office is exempt up to Rs 1600

Education Allowance is exempt up to Rs 100 per month per child up to a max

en. Also, Rs. 300 per month per child up to two children is allowed if they are in h

The rules for valuation of perquisite are as under: Accommodation: - For purpose of valuation of the perquisite of
unfurnished accommodation, salaried taxpayers valuation of
perquisite in respect of accommodation would be at prescribed
rates, as discussed below:
Where the accommodation provided to the employee is owned by
the employer, the rate is 15% of salary in cities having
population exceeding 25 lakh as per the 2001 census. The rate is
10% of salary in cities having population exceeding 10 lakhs but
not exceeding 25 lakhs as per 2001 Census. For other places, the
perquisite value would be 7.5 % of the salary.
Where the accommodation so provided is taken on lease/ rent by
the employer, the prescribed rate is 15% of the salary or the
actual amount of lease rental payable by the employer, whichever
is lower, as reduced by any amount of rent paid by the employee.

For furnished accommodation, the value of perquisite as

determined by the above method shall be increased by (i) 10% of the cost of furniture, appliances and
equipments, or
(ii) Where the furniture, appliances and equipments have
been taken on hire, by the amount of actual hire charges
payable.

Accommodation includes a house, flat, farm house,

hotel accommodation, motel, service apartment, guest
house, a caravan, mobile home, ship etc. However, the
value of any accommodation provided to an employee
working at a mining site or an on-shore oil exploration site
or a project execution site or a dam site or a power
generation site or an off-shore site will not be treated as a
perquisite.

However, for not being treated as perquisite, such accommodation

should either be located in a remote area or where it is not located
in a remote area, the accommodation should be of a temporary
nature having plinth area of not more than 800 square feet and
should not be located within 8 kilometers of the local limits of any
municipality or cantonment board.

A project execution site for the purposes of this sub-rule means a

site of project up to the stage of its commissioning. A remote area
means an area located at least 40 kilometers away from a town
having a population not exceeding 20,000 as per the latest published
all-India census.
If an accommodation is provided by an employer in a hotel the
value of the benefit in such a case shall be 24% of the annual salary
or the actual charges paid or payable to such hotel, whichever is
lower, for the period during which such accommodation is provided
as reduced by any rent actually paid or payable by the employee.
However, where in cases the employee is provided such
accommodation for a period not exceeding in aggregate fifteen days
on transfer from one place to another, no perquisite value for such
accommodation provided in a hotel shall be charged.

II Personal attendants etc.: The value of free service of all personal

attendants including a sweeper, gardener and a watchman is to be
taken at actual cost to the employer. Where the attendant is provided
at the residence of the employee, full cost will be taxed as perquisite
in the hands of the employee irrespective of the degree of personal
service rendered to him. Any amount paid by the employee for such
facilities or services shall be reduced from the above amount.
III Gas, electricity & water: For free supply of gas, electricity and
water for household consumption, the rules provide that the amount
paid by the employer to the agency supplying the amenity shall be the
value of perquisite. Where the supply is made from the employers
own resources, the manufacturing cost per unit incurred by the
employer would be taken for the valuation of perquisite. Any amount
paid by the employee for such facilities or services shall be reduced
from the above amount.

IV

Free or concessional education:

Perquisite on account of free or concessional education shall be

valued in a manner assuming that such expenses are borne by the
employee, and would cover cases where an employer is running,
maintaining or directly or indirectly financing the educational
institution. Any amount paid by the employee for such facilities or
services shall be reduced from the above amount. However, where
such educational institution itself is maintained and owned by the
employer or where such free educational facilities are provided in
any institution by reason of his being in employment of that
employer, the value of the perquisite to the employee shall be
determined with reference to the cost of such education in a similar
institution in or near the locality if the cost of such education or
such benefit per child exceeds Rs.1000/- p.m.

Interest free or concessional loans It is common practice, particularly in

financial institutions, to provide interest free or concessional loans to employees
or any member of his household. The value of perquisite arising from such loans
would be the excess of interest payable at prescribed interest rate over interest, if
any, actually paid by the employee or any member of his household. The
prescribed interest rate would now be the rate charged per annum by the State
Bank of India as on the 1st day of the relevant financial year in respect of loans
of same type and for the same purpose advanced by it to the general public.
Perquisite value would be calculated on the basis of the maximum outstanding
monthly balance method. For valuing perquisites under this rule, any other
method of calculation and adjustment otherwise adopted by the employer shall
not be relevant.
However, small loans up to Rs. 20,000/- in the aggregate are exempt. Loans for
medical treatment specified in Rule 3A are also exempt, provided the amount of
loan for medical reimbursement is not reimbursed under any medical insurance
scheme. Where any medical insurance reimbursement is received, the perquisite
value at the prescribed rate shall be charged from the date of reimbursement on
the amount reimbursed, but not repaid against the outstanding loan taken
specifically for this purpose.

VI. Use of assets: It is common practice for an asset owned by the employer to be
used by the employee or any member of his household. This perquisite is to be charged
at the rate of 10% of the original cost of the asset as reduced by any charges recovered
from the employee for such use. However, the use of Computers and Laptops would
not give rise to any perquisite.
VII. Transfer of assets: Often an employee or member of his household benefits from
the transfer of movable asset (not being shares or securities) at no cost or at a cost less
than its market value from the employer. The difference between the original cost of the
movable asset (not being shares or securities) and the sum, if any, paid by the
employee, shall be taken as the value of perquisite. In case of a movable asset, which
has already been put to use, the original cost shall be reduced by a sum of 10% of such
original cost for every completed year of use of the asset. Owing to a higher degree of
obsolescence, in case of computers and electronic gadgets, however, the value of
perquisite shall be worked out by reducing 50% of the actual cost by the reducing
balance method for each completed year of use. Electronic gadgets in this case mean
data storage and handling devices like computer, digital diaries and printers. They do
not include household appliance (i.e. white goods) like washing machines, microwave
ovens, mixers, hot plates, ovens etc. Similarly, in case of cars, the value of perquisite
shall be worked out by reducing 20% of its actual cost by the reducing balance method
for each completed year of use.

VIII Medical Reimbursement by the employer exceeding Rs.

15,000/- p.a. u/s. 17(2)(v) is to be taken as perquisites.
It is further clarified that the rule position regarding valuation of
perquisites are given at Section 17(2) of Income Tax Act, 1961 and
at Rule 3 of Income Tax Rules, 1962. The employers may look into
the above provisions carefully before they determine the
perquisite value for deduction purposes.
It is pertinent to mention that benefits specifically exempt u/s
10(13A), 10(5), 10(14), 17 etc. would continue to be exempt. These
include benefits like travel on tour and transfer; leave travel, daily
allowance to meet tour expenses as prescribed, medical facilities
subject to conditions.

Income Tax Slabs for the Financial Year 2014-15Assessment Year 2015-16
Tax credit of Rs. 2,000 for all with income up to Rs. 5 lakhs
Rajiv Gandhi Equity Savings Scheme (under section 80CCG)to enable first time investors to park funds in
MF (RGESS) An Assessee with income less that Rs. 12 lakhs would tax incentives for investing up to
Rs. 50,000.
Higher deduction of Rs 1 lakh for home loan EMIs for those who are taking home loan for the first time
during the period 2013-2015.
Educational cess @ 3% of Income Tax.
Income Level

Male/Female
Senior Citizen ( Senior Citizen
(less than 60
60 80 Years) (More than 80
Years) Assessee Assessee
years) Assessee

Income up to
Rs. 2 .5 lakhs

No Tax

No Tax (up to
3.0 lakhs)

No Tax (up to
Rs. 5 lakhs)

Rs. 2.5 lakhs to

5 lakhs

10%

10% (3.0 to 5
lakhs)

No Tax

Rs. 5 lakhs to 10 20%

lakhs

20%

20%

Above 10 lakhs

30%

30%

30%