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Tax Assignment 1820602

This document discusses the methodology for calculating exemptions on House Rent Allowance (HRA) paid to employees under Section 10(13A) of the Indian Income Tax Act of 1961. It states that the exemption on HRA is the least of the actual HRA amount received, rent paid minus 10% of salary, or 50%/40% of salary depending on location. The document also outlines three methods for calculating the HRA exemption: annualized, monthly, or using periods where input factors remain the same.

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Aashish mishra
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36 views2 pages

Tax Assignment 1820602

This document discusses the methodology for calculating exemptions on House Rent Allowance (HRA) paid to employees under Section 10(13A) of the Indian Income Tax Act of 1961. It states that the exemption on HRA is the least of the actual HRA amount received, rent paid minus 10% of salary, or 50%/40% of salary depending on location. The document also outlines three methods for calculating the HRA exemption: annualized, monthly, or using periods where input factors remain the same.

Uploaded by

Aashish mishra
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Taxation Management Assignment

Aashish Mishra 1820602


Methodology of computation of House Rent Allowance exemption U/S
10(13A) of the Income Tax Act,1961

Section 10(13A) of the Income Tax Act,1961 along with Rule 2A of the Income Tax Rules
provides for income tax exemption on House Rent Allowance (HRA) paid to employees.

The least among the below shall be the exemption on HRA as per Rule 2A of Income Tax Rules.

1. The actual HRA pay amount received by the employee.

2. The house rent paid by the employee which is in excess of 10% of the salary, i.e. rent minus
10% of salary.

3. 50% of salary if the rented house is located in a metro city (Delhi, Mumbai, Kolkata or Chennai)
or 40% of salary if the rented house is located in any place other than these metro cities.

There are 3 different types of methods to calculate HRA exemption:

a. Annualized calculation

Some organizations use the annual amounts of Basic, HRA, and rent paid, and calculate the HRA
exemption by applying the Least of Three rule.

b. Monthly calculation

Some organizations use the monthly amounts of Basic, HRA, and rent paid, and calculate the
monthly HRA exemption by applying the Least of Three rule. The total HRA exemption for the
year is the sum of all monthly HRA exemption figures.

c. Period method

In this method, the HRA exemption is calculated (by applying the Least of Three rule) for a period
in which the input factors (Basic, HRA, rent paid and location) remain the same.

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