7th Pay Commission House Rent Allowance | HRA Rules | HRA for Center State Gov Employee
With the central govt. deciding to implement the 7th central pay commission from 1st July, 2017, all the central govt. employees will get benefit of the alterations made in the HRA which is a very important allowance provided. The HRA is nothing but allowance towards housing / accommodation which is provided to the employees along with their monthly salary. As this new pay commission will bring radical changes in the salary structures of the govt. employees along with modifications in some of the allowances provided to them. There are tax exemption rules for the HRA which are beneficial to every tax payer. More than 47 lakh employees, currently in service and receiving central pay scale will get the benefits of HRA under 7th CPC as the rates of HRA will be increased than the existing rates.
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What is HRA?
HRA is a special type of allowance which an employer provides to its employees to pay for the accommodation charges. This is a monthly allowance which is added to the basic salary of the employee. HRA is one of the important tools also to get the tax amount reduced. The housing allowance provided to one employee depends on their salary structure as well as the category of city they reside in. That means employees staying in big cities with high standard of living are provided with higher HRA compared to those staying in rural or semi – rural towns. There are also exemptions of tax in case of HRA which will be discussed later.
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HRA Eligibility Rules
- Those employers which have provisions of providing housing rent allowance to its employees will get this allowance along with their monthly salary. Al employees of the central govt. as well as the state governments enjoy this facility.
- If the employee stays in a rented accommodation and performs duty, then the rent which is actually paid by the employee each month may be claimed for tax exemption on annual basis.
- Only the salaried individuals get the full benefit of housing rent allowance as they get tax benefits by showing housing rent receipts. Those who are self – employed do not get the tax benefits of the HRA.
- In case one stays in the house owned by parents and is paying rent for it, then proper justified documents are required to be furnished. Also the parents while declaring their net income must indicate the rent collected from the siblings.
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House rent allowance rules 2017 and exemption rules
The rent allowance for accommodation which is provided by the employer to the employee along with the monthly salary might have different tax rules under different criteria. No tax benefit can be availed in case no monthly rent is paid by the employee for accommodation. Or, even if the employee is living at his own home, then also full tax will be calculated. The exemption rules which are followed for HRA calculation is calculated totally on the basic salary of the employee. The basic salary is the actual salary which is being provided to the employee per month, which excludes all the allowances, DA additions, bonus, etc. HRA allocation also depends on the city where the employee is currently working. The smaller cities fetch low HRA where as metro cities like Delhi, Chennai, Bangalore where standard of living is high fetch higher HRA rates
- As per the location of posting of the employees the HRA benefits will be served rationally. Central govt. employees may expect around 106 – 157 per cent hike in their housing allowance with the implementation of 7th
- A city where the population is above 50 lakh is considered as X category city. The locations with population in the range of 5 lakh to 50 lakh are marked as Y category city. And the small cities with population less than 5 lakh are the Z category cities.
- Previously before the 7th pay commission, the rates of HRA for the X, Y and Z category cities was 24 %, 16 % and 8 % respectively.
- This has been changed to 30 %, 20 % and 10 % for the X, Y and Z cities, respectively with the new 7th pay commission implementation.
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House rent allowance calculation and deduction
HRA is a very important factor to decide the actual income tax which one is liable to pay in a financial year. So proper calculation and deduction of HRA is very crucial for all tax-paying salaried individuals. To calculate the HRA for tax deductions, one of the three aspects will be considered:
- The actual amount which is allocated as HRA from the employer to its employee.
- The accommodation rent which is incurred actually, minus 10 % of the Basic salary.
- 40 % of basic salary for staying location in a non metro city and 50 % of basic salary is employee resides in a metro city.
The lower of the three conditions will be taken up for HRA tax deductions.
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Is HRA taxable?
- HRA has tax benefits as it helps reducing tax by showing proper payment receipts of the rents paid on monthly / annual basis by the employee.
- In case one stays in their own house or the house belongs to their spouse, they will not be able to get tax deduction benefits from the HRA.
- The important documents required to claim HRA tax deductions are the agreement of rent which is provided by the land lord to the employee and the monthly rent receipts.
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House Rent Allowance in 7th pay commission For Central Government
With the implementation of the 7th Central pay commission, the structure of allowance provided for House rent to the central govt. employees will also be modified as per the recommendations.
- More than 47 lakh employees who are currently in service will be getting full benefit of the hike in HRA which will get implemented along with the salaries of the employees from 1st July, 2017. The central govt. employees will experience a HRA hike which will range from 106 % to 157 % as per their posting location.
- As per the current proposal, the rate of HRA for Class X city (with population above 50 lakh) is 30 %. Whereas for Class Y city (with population between 5 – 50 lakh), the rate is 20 % and for the Class Z cities (with population below 5 lakh) the rate of HRA is 10 %.
- This is higher than the previous proposal of 7th CPC which provided HRA rate of 24 %, 16 % and 8 % for Class X, Class Y and Class Z cities respectively.
- Those employees who have low income will have a special benefit as the centre has fixed the lower limit of HRA which should be Rs. 5,400 for X, Rs. 3,600 for Y and Rs. 1,800 for Z category.
- When the DA will cross 50 %, the HRA will get revised upwards to 27% for X, 18 % for Y and 9% for Z category. And for 100% DA, the revision in HRA will be 30%, 20% and 10%.
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