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How to calculate HRA

 Employees generally receive a house rent allowance (HRA) from their employers. This is a part of the salary package, in accordance with the terms and conditions of employment. HRA is given to meet the cost of a rented house taken by the employee for his stay.The Income Tax Act allows for deduction in respect of the HRA paid to employees. The exemption on HRA is covered under Section 10(13A) of the Income Tax Act and Rule 2A of the Income Tax Rules. It is to be noted that the entire HRA is not deductible. HRA is an allowance and is subject to income tax.

An employee can claim exemption on his HRA under the Income Tax Act if he stays in a rented house and is in receipt of HRA from his employer. In order to claim the deduction, an employee must actually pay rent for the house which he occupies.
The rented premises must not be owned by him. In case one stays in an own house, nothing is deductible and the entire amount of HRA received is subject to tax. As long as the rented house is not owned by the assessee, the exemption of HRA will be available up to the the minimum of the following three options:
Actual house rent allowance received from your employer
Actual house rent paid by you minus 10% of your basic salary
50% of your basic salary if you live in a metro or 40% of your basic salary if you live in a non-metro
This minimum of above is allowed as income tax exemption on house rent allowance.
Salary here means basic salary which includes dearness allowance if the terms of employment provide for it, and commission based on a fixed percentage of turnover achieved by the employee. The deduction will be available only for the period during which the rented house is occupied by the employee and not for any period after that.
Meaning of Salary for calculation the exemption of HRA
Salary means (Basic + D.A + Commission based on fixed percentage on turnover).
Salary is to be taken on due basis in respect of the period during which the period accommodation is occupied by the employee in the previous year.
Examples for calculation of exemption/deduction of HRA
X has received following amount during the previous year.
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/-
Calculation
The minimum of the following amount shall be exempt
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.
Frequently Asked Questions:-
How is HRA accounted for in the case of a salaried individual and a self-employed professional?
HRA (house rent allowance) is accounted for in the case of salaried people under Section 10 (13A) of Income Tax Act, 1961, in accordance with rule 2A of Income Tax Rules. On the other hand, self-employed professionals cannot be considered for HRA exemption under this act, as they do not earn a salary. However, they can claim benefits on the house rent expenses incurred under section 80GG, which resembles section to 10(13A) but is subject to certain conditions.
What are the dependent factors in calculating HRA for the salaried individual?
When you are calculating HRA for tax exemption, you take into consideration four aspects which includes salary, HRA received, the actual rent paid and where you reside, i.e., if it is a metro or non-metro. If these aspects remain constant through the year, then tax exemption is calculated as a whole annually, if this is subject to change, as in a rent hike, pay hike or shift in residence etc., then it is calculated on a monthly basis. It is usually rare for all the values to remain constant in a financial year.
The place of residence is significant in HRA calculation as for a metro the tax exemption for HRA is 50% of the basic salary while for non-metros it is 40% of the basic salary. This holds true especially when you work at a metro and reside at a non-metro. In this case, your city of residence only will be considered for calculating your HRA.
Can I pay rent to my parents or spouse to avail HRA benefits?
You can pay rent to your parents, however, they need to account for the same under ‘Income from other sources’ and will be entitled to pay tax for the same.
On the other hand, you cannot pay rent to your spouse. In view of the relationship when you take up residence together, you are expected to do so and hence such a transaction does not bear merit under tax laws. Sham transactions can only spell trouble under scrutiny, so steer clear of these.
Do I need to submit any proof for my HRA claim?
You need to submit proof of rent paid through rent receipts, for which only two need to be submitted, one for the beginning of the year and one towards the end of the financial year. It should have a one rupee revenue stamp affixed with the signature of the person who has received the rent, along with other details such as the rented residence address, rent paid, name of the person who rents it etc.
Can I simultaneously avail tax benefits on my home loan and HRA?
The tax benefits for home loan and HRA are two separate entities and have no direct bearing on each other. As long as you are paying rent for an accommodation, you can claim tax benefits on the HRA component of your salary, while also availing tax benefits on your home loan. This could be the case if your own home is rented out or you work from another city etc. However, you need to account for any rental income you receive from the property you own under income from other sources.

Courtesy : Taxguru

Posted: 10 Jun 2011 11:26 PM PDT

China’s real estate market falling

According to the fresh reports from our sources that Beijing’s home prices are constantly falling from last month comparatively last year’s property prices. “The average price of a newly constructed unit dropped to 23,467 yuan ($3,400) per square meter, down 7.2% from April and down 21% from May 2010” as reports said.

As per China’s sector watcher says that from last couple of years Chinese real estate market is falling like in Beijing and Shanghai.
Recent February report said that the Beijing municipality has introduced several new norms in real estate sector from now onwards there will be restrictions for migrants for purchasing property whereas for second home purchase they have to pay higher down-payments. Those policies are expected to rein in the city’s housing transactions by as much as 50% this year sources said.
China’s National Bureau reported in May that sales prices of newly constructed buildings in 70 big cities, prices are down in 9 cities and remained same in 5 cities comparatively last month. There are 56 cities where property prices are constantly increasing.

Posted: 08 Jun 2011 03:51 AM PDT

DUBAI’S TAX FREE PROPERTY STATUS LURES INDIAN INVESTORS

Indian investors look to capitalise on the emirate’s secure investment environment, tax-free returns and tightly regulated property market

DUBAI, 8th June 2011: Tax-free returns are enticing an increasing number of Indian investors into Dubai’s property market according to the Middle East’s leading independent real estate company, DAMAC Properties.

Attracted by Dubai’s world-class infrastructure, secure investment environment, tax-free returns and tightly regulated property market, Indian investors are increasingly looking to invest in Dubai’s prime real estate market. With potential capital appreciation and tax-free rental yields ranging from 7- 12%, according to CBRE, premium properties in Dubai offer a safe and lucrative long-term investment.

Niall McLoughlin, Senior Vice President DAMAC Properties said: “At DAMAC Properties, we have witnessed a significant increase in enquiries about our Dubai portfolio from Indian investors looking to capitalise on favourable conditions in a secure market. Indian investors are weighing up the impact of property taxes at home, and deciding that Dubai is a more attractive market for sustainable long term investment.”

Dubai’s property market appeals to Indian investors because there is zero tax on rental returns, and no capital gains tax. This is compared to India which demands tax on rental income as well as capital gains tax of about 20 per cent.

“Tax is a big consideration in any investment decision, but Dubai takes tax out of the equation. It means investors considering purchasing property in Dubai can focus on evaluating rental yields and potential capital gains, without having to think about the possible tax implications of their investment” Mc Loughlin added.

In addition to the tax relief offered by Dubai, Indian investors are increasingly seeking take advantage of a 60 per cent price disparity between the Emirate and the sub-continent. At an average price per square foot of $264 in Dubai, according to Colliers International, property is now 60% cheaper than in central Mumbai, where the price per square foot is $664 according to Jones Lang LaSalle.

Dubai’s property market is also gaining favour with foreign investors due to the implementation of a raft of new regulations, such as the new Strata law, which favours home owners. As these new tougher and more stringent regulations take hold, Indian investors are looking to take advantage of the plethora of investment opportunities that exist within the emirate’s real estate market.
The recent Dubai Real Estate Market Overview by leading real estate services firm, Jones Lang LaSalle supports DAMAC Properties’ findings and suggests that the total value of residential property transactions in Dubai increased by 30% in 2010 over 2009, and the number of actual transactions increased by 20% during the same period. The report also suggested that as prices stabilise in some sectors and lending conditions continue to ease transaction volumes could increase even further during 2011.

“We believe that investors will always be attracted to all of the positive attributes that Dubai has to offer – world-class infrastructure; strategic location; established tourist destinations, proven business centres; a highly skilled expat workforce; and most importantly strong and stable government leadership,” Mc Loughlin concluded.

DAMAC Properties continues to deliver luxury projects across the MENA region, with 28 buildings, comprising 6045 units, delivered to date. Before the end of the year, DAMAC Properties will complete a further 8 buildings comprising 1,329 units. DAMAC Properties will be an enduring fixture in the Dubai landscape, and Dubai itself will continue to be a major draw for Indian investors.

Posted: 10 Jun 2011 12:09 AM PDT

Second Homes as an ideal Investment Option for home buyers

Some things are too good to be true, they say, If possible why not? Why is it too much to ask for to have the cake and eat it too? I am told that you can either be married or be happy! Likewise you can either have a second home or an investment! The later is as true as the former, depends on ones point of view I guess.As business can be mixed with pleasure, buying a second home can make investment sense if certain basic tenets of investing are followed and tailored to suit second homes. The basics of investment tell us that an investment should have the potential to grow in value. This potential comes out of the future prospects of the investment and its ability to change hands by attracting buyers at future prices or future valuations. It must hold the promise of growing in value over a period of time and be liquid enough to be able to convert to cash when one desires to do so. To make this happen a second home property must fit the following criteria;

•The area where a second home is located should show promise of development in the near future
•There should be good development in the second home scheme itself
•The property should be very well maintained in order for it to be able to attract attention of prospective future buyers
•The project should have good amenities and conveniences which can attract the interest of the buyer and make the investment worthwhile. Special emphasis is laid on recreational amenities, health related amenities and lifestyle.
•An attraction like a popular restaurant, spa, picnic spot, resort etc being part of the project is an ideal scenario. These attractions ensure foot falls in the project from outsiders, make businesses in the project viable and ensures that a resale market is created as there will be demand for properties for sure.
•The presence of such attractions also ensures that the second home project is well maintained, kept clean and attractive.
•This ensures that a resale market is created which ensures liquidity which makes the investment very lucrative and dynamic in ones portfolio.
The value addition in typical second home projects is very high, hence an investment made in vary early stages of a second home project can have a phenomenal appreciation by the time the project comes to the end and later on as the attractions start kicking in the appreciation in investment improves many more fold.
Companies like Disha Direct believe in making second homes a lucrative investment option by;
•Choosing destinations that hold promise in the near future.
•Projects that are very well developed.
•Products are reasonably priced at all times to ensure that the investor benefits in the medium to long run.
•Development of attractions like Resort, Club & Spa are popularized, professionally run and attract a lot of foot fall in the project
•This ensures that the project is not dead, always alive and bustling
•Project is well maintained in the interest of the attractions and the surplus from the attractions in addition to the maintenance charges are well spent to further a common goal.
Case in point being Talegaon, here the value of land and constructed property showed a 400% increase in 4 years time (2004-2008). The development at Talegaon ensured that this was possible and Disha Directs foresight which promoted Talegaon as a destination paid off for the investors. Likewise opportunities at Kasara, Wada, Karjat and other such destinations have returned more than 300% returns over the years.
Mr. Sameer Dange an investor at Talegaon regrets that he should have increased his value for investment as the phenomenal returns that he has enjoyed was unbelievable. Likewise Mrs.Shinde an investor in Wada has seen her investment grow from Rs.100/- per sq.ft. of land to Rs.350/- per sq.ft. over 3 years. Both these investors have an opportunity to for resale thus giving them the chance to cash their investments.
So if one is looking for a second home as an investment option , look for names of repute who are developing the project, ensure that the project will be professionally maintained once its completed, an attraction which will draw people to it regularly is a must as it creates liquidity for future sale and lastly the area in which the project is located should hold the promise of development in the near future or should be ideally located for the specific attraction which otherwise cannot be located elsewhere. Second Homes can certainly be looked at as an option to diversify ones investment portfolio.

Posted: 07 Jun 2011 04:54 AM PDT

Downturn in housing finance demand due to high interest rate: NHB

Housing finace demand has been severely damaged due to the mounting interest according to the National Housing Bank (NHB). “Prior to slowdown in global market housing finance has 25percent growth per year for consecutive four years” NHB Chairman and Managing Director R V Verma told in media conclave of the 26th Skoch Summit here.
As per the reports in the current fiscal year 2011 demand for housing loan increased by the 16prcent for Rs. 62K Cr. which directly indicates the downturn. Even though when recovery progress began in the previous year growth rate was 19percent.
According to the sector watcher “if interest will continuously increase in the near future then it will surely damage the housing finance demand.”
RBI raised key interest rates in May this year by 50 basis points to battle high inflation, its ninth rate hike since March, 2010.
Whereas NHB has raised its prime lending rates to 10.5 per cent from 10.25 per cent three months back and has no plans to further hike rates, official said.

Posted: 04 Jun 2011 05:28 AM PDT

Maya Govt announced new land acquisition policy

On this Thursday Mayawati government has introduced a new land acquisition policy to facilitate farmer those land has been acquired for development. According to this policy those farmers have provision to get return back 16% of their land which has been full developed. After the several protest demonstrated over the land acquisition issue by farmers and villagers in the entire state, now BSP government has come up with the new land acquisition policy under this policy state will no longer to acquire directly land for the development of the private sectors.
According to the sources the new announced policy will come into effect on higher priority basis. When asked more about this policy officials said that “farmers won’t benefited under this policy those lands are already under process for land acquisition” several farmers protesting in Bhatta Prasaul in Greater Noida to Allahabad, where power projects are coming up, would continue to be deprived of benefits announced in the new policy. They added that this policy has been divided into three sects such as for private sector i.e. industries, power projects, expressways etc, land acquisition is to be done directly by the private entity and the government would have no role in acquisition except facilitating the process.
Under this policy any private company could directly make contact with the farmers whose 705 land acquired, whereas if 705 landowners are disagree with the compensation package then their project will be reordered. Though farmers have an option to get back their full developed lands 16%. In addition they will get annuity of 23,000 per acre acquired for the next 33 years besides other benefits under the Rehabilitation and Resettlement Policy of 2010.
If farmer is not willing to take the entire 16 percent of the developed land then he has option take part compensation in cash and the remaining as developed land. The developed land farmers get would be free of cost and no stamp duty would be charged. In case the farmer uses the compensation amount to buy agricultural land anywhere in the state within one year of acquisition he would enjoy stamp duty waiver.

Posted: 03 Jun 2011 05:42 AM PDT