My employer gave me HRA of around ₹11,900 a month for FY15-16. But the actual rent I paid was ₹27,000. How much is exempt from tax?
Lakshman RM
House rent allowance (HRA) is given to an employee by the employer to meet his/her residential rental expenses. It shall be tax exempt up to the prescribed limits, provided the employee actually uses it to pay the rent for his/her house.
The least of the following is available as exemption: HRA actually received; rent paid in excess of 10 per cent of salary; 40 per cent of the salary in case the rented accommodation is in a non-metro, and 50 per cent if it is in a metro.
It should be noted that salary for this purpose includes basic salary as well as dearness allowance.
The HRA exemption is not available in case the accommodation is owned by the assessee. In the absence of your salary details, I cannot comment on the quantum of exemption available to you.
You can calculate the same based on the three limits mentioned above. The balance of HRA received (post exemption) is taxable.
I have been an NRI since 2002, and have invested ₹79 lakh in NRE fixed deposits for a 10-year term. In the event of returning to India for good, what will be the income tax effect on the principal amount as well as the interest?
C Bellur
As per the Indian tax laws, interest income earned by an individual on NRE accounts is tax exempt in India if the individual qualifies as a person resident outside India (PROI), as per the Foreign Exchange Management Act, 1999 (FEMA).
FEMA defines PROI as a person who is not a person resident in India (PRII). A PRII is defined as a person residing in India for more than 182 days during the preceding financial year.
However, there are certain exclusions to the definition of PRII like a person who has gone out of India or who stays outside India or who is taking up employment outside India etc.
PRII also includes a person who comes to India in such circumstances as would indicate his intention to stay in India for an uncertain period.
In your case, the interest earned on NRE account will be taxable in the year in which you return to India permanently since you would qualify as a PRII. Please note that the principal amount shall not be taxable. Further, you will have to notify the bank of the change in your status to PRII.
The writer is a practising chartered accountant. Send your queries to taxtalk@thehindu.co.in