HRA – allowance is one of the components of salary package, which is normally offered to employees by their employers to meet the higher cost of renting a home. Tax exemption under Income Tax Act for HRA is allowed to salaried persons who are occupying a rented accommodation. It is being regulated by 2A of Income Tax Rules, 1962 and Section 10(13A) of the Income Tax Act, 1961. Accordingly, least of the following three options will be exempt from tax
·                                 [a.) 50% of the basic salary and DA, where the residential house is situated at Mumbai, Kolkata, Delhi or Chennai and an amount equal to 40% of above salary where residential house is situated in any other place. 
·                                 [b.] HRA actually received by the employee in respect of the period during which rented accommodation is occupied by the employee during the financial year
·                                  [c.] the excess of rent paid over 10% of the salary. 
Some times, salaried persons who avail home loan for acquisition or construction of residential house properties but could not stay in such properties owing to employment or other reasons and they stay in rented houses. In such circumstance, when they are receiving a HRA - allowance from their employer, a question often arises


whether they can get exemption of HRA under section 10(13A) of the Act?, based on the rent actually paid by them as well as the interest payable on the housing loan taken by them towards acquisition or construction of a property. 

To avail HRA benefit,
·                                 salaried employee who is in receipt of HRA from his employer
·                                  should be actually paying house rent for the rented premises which he has occupied and
·                                  such rented premises must not owned by him. 
It is evident from the above section the exemption of HRA is available to an assessee so long as he occupies the rented premises which is not owned by him. At the same time, the assessee is not barred from claiming exemption under section 10(13A) read with rule 2A, because he be the owner of any other house property, which was acquired through housing loan. It is to be noted that provisions of deduction of interest on borrowed capital for the acquisition or construction of house property and exemption of house rent allowance are two different issues under the Act, as one would not influence other. The benefits accrue on account of availing home loan are interest payments which is exempted under section 24(b) and the principal repayment is exempted under section 80C of the Income Tax Act. Conversely, HRA benefit can also be availed by the assessee on fulfillment of certain circumstances depicted above
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