HRA deduction - Tax Planning Tips and Clarifications
WISH YOU A HAPPY AND A PROSPEROUS NEW YEAR.
Q.1. What is HRA?
HRA i.e. House Rent allowance is a common form of allowance employees receive. Taxation of HRA requires certain clarifications which generally people are looking for but do not get correct answers.
Q.2. What is the exemption available under Income tax act in relation to HRA?
A part of HRA is exempted u/s 10(13A) of Income Tax Act, 1961.
The amount of exemption is taken to be the least of following three amounts:
Amount of HRA received.
Excess of Rent paid over 10% of Salary
50% of Salary, in case the employee resides in metro cities. otherwise 40% of salary
Q.3. What is meant by Salary for the purpose of HRA?
Salary means Basic Salary + Dearness Allowance + Commission which is based on turnover acheived.
Q.4. If i stay in my own house and pay rent for some other house, is the rent paid considered for exemption?
The one and only important condition is that you should pay rent for the house in which you live. Such rent is only considered for exemption purpose. If you are staying in a house for which no rent is paid or payable, then HRA exemption is not available for you.
Q.5. I worked for 8 months, but I paid rent for 12 months. what is your view about HRA exemption?
If you worked for 8 months, the next question is for how many months, did you receive HRA? If you received HRA for 8 months, then those 8 months’ rent expenditure is only taken for calculation of exemption purpose. Other months - No.
Q.6. My employer is asking proof for Rent payment. What should i do as per law?
As per Rule 2A, an employee who is getting House Rent Allowance of Rs.3000/- p.m. or lesser need not submit any sort of rent receipt to their employer. However, IT department can ask for such proof, in case they want. Otherwise, employer cannot ask for the proof upto Rs.3000/-
Those having house rent allowance of more than Rs.3000/- p.m. should definitely submit rent receipts to their employer for the employer to estimate your tax liability correctly.
Q.7. I want to do HRA planning in my Salary Structure. i.e. I want to know, How much HRA should i receive from the company to best utilize the exemption? Please advice.
First tell me, what is your rental expenditure p.a. as a percentage of salary
a) Rent as a percentage of Salary: say x%
b) Reduce x by 10, so you have (x-10)%
c) Your HRA as a component in salary structure should be (x-10)% or 50% whichever is lower.
Q.8. I want to do HRA planning by finding out how much rent should I pay to get the maximum benefit? Please advice.
This means that your HRA is fixed but you want to know what amount of rent can get maximum benefit to you.
If your HRA is 50% of salary or more, then your rent can be 60% of salary.
If your HRA is less than 50% of salary, then your rent can be (HRA as a percentage of Salary + 10)%
Please note: This is Tax Planning not Tax avoidance. This is one of my researched tax planning option… so enjoy!
Monday, February 25, 2008
Hi Corporates and Tax Audit Assessees!
Hi Corporates and Tax Audit Assessees!
This dose is for you… CBDT (Central Board of Direct Taxes) has made the e-payment of taxes compulsory starting this April 1, 2008. SO, GEAR UP!e-Filing of Returns is already mandatory for these assessees, Now, e-payment also.
Why e-payment also? God knows whether the tax department now even doubts payment facilities at Banks by way of cash / cheque /drafts? e-payment is a facility and facility cannot become mandatory. For example, drinking water is a facility at cinema halls, but drinking water cannot become compulsory! so is this facility of e-payment of taxes.As usual rules are rules and meant to be complied…
So, To avail of this facility the taxpayer is required to have a net-banking account with any of the banks listed below, which are the only banks offering this facility at present.
Account Holders of
Axis Bank
State Bank of India
Punjab National Bank
Indian Overseas Bank
Canara Bank
Indian Bank
Bank of India
Corporation Bank
State Bank of Bikaner & Jaipur
State Bank of Travancore
State Bank of Indore
Vijaya Bank
HDFC Bank
Oriental Bank of Commerce
State Bank of Patiala
Bank of Baroda
IDBI Bank
Please Click Here
Account Holders of
Union Bank of India
Please Click Here
Procedure for e-payment:
1. To pay taxes online the taxpayer will select the relevant challan i.e. ITNS 280, ITNS 281, ITNS 282 or ITNS 283, as applicable.
2. Enter its PAN / TAN as applicable. There will be an online check on the validity of the PAN / TAN entered.
3. If PAN/ TAN is valid the taxpayer will be allowed to fill up other challan details like accounting head under which payment is made, name and address of TAN and also select the bank through which payment is to be made, etc.
4. On submission of data entered a confirmation screen will be displayed. If the taxpayer confirms the data entered in the challan, it will be directed to the net-banking site of the bank.
5. The taxpayer will login to the net-banking site with the user id/ password provided by the bank for net-banking purpose and enter payment details at the bank site.
6. On successful payment a challan counterfoil will be displayed containing CIN, payment details and bank name through which e-payment has been made. This counterfoil is proof of payment being made.
This dose is for you… CBDT (Central Board of Direct Taxes) has made the e-payment of taxes compulsory starting this April 1, 2008. SO, GEAR UP!e-Filing of Returns is already mandatory for these assessees, Now, e-payment also.
Why e-payment also? God knows whether the tax department now even doubts payment facilities at Banks by way of cash / cheque /drafts? e-payment is a facility and facility cannot become mandatory. For example, drinking water is a facility at cinema halls, but drinking water cannot become compulsory! so is this facility of e-payment of taxes.As usual rules are rules and meant to be complied…
So, To avail of this facility the taxpayer is required to have a net-banking account with any of the banks listed below, which are the only banks offering this facility at present.
Account Holders of
Axis Bank
State Bank of India
Punjab National Bank
Indian Overseas Bank
Canara Bank
Indian Bank
Bank of India
Corporation Bank
State Bank of Bikaner & Jaipur
State Bank of Travancore
State Bank of Indore
Vijaya Bank
HDFC Bank
Oriental Bank of Commerce
State Bank of Patiala
Bank of Baroda
IDBI Bank
Please Click Here
Account Holders of
Union Bank of India
Please Click Here
Procedure for e-payment:
1. To pay taxes online the taxpayer will select the relevant challan i.e. ITNS 280, ITNS 281, ITNS 282 or ITNS 283, as applicable.
2. Enter its PAN / TAN as applicable. There will be an online check on the validity of the PAN / TAN entered.
3. If PAN/ TAN is valid the taxpayer will be allowed to fill up other challan details like accounting head under which payment is made, name and address of TAN and also select the bank through which payment is to be made, etc.
4. On submission of data entered a confirmation screen will be displayed. If the taxpayer confirms the data entered in the challan, it will be directed to the net-banking site of the bank.
5. The taxpayer will login to the net-banking site with the user id/ password provided by the bank for net-banking purpose and enter payment details at the bank site.
6. On successful payment a challan counterfoil will be displayed containing CIN, payment details and bank name through which e-payment has been made. This counterfoil is proof of payment being made.
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