Housing is one of the most essential needs for every individual today and is thus non-negotiable at all costs. It was one of the top basic needs, whether it be in a house of your own or at a rented property, as the roof above your head is the need of the hour. Looking at this increasing demand for housing requirements, in terms of monetary compensation, the Income Tax Act of 1961 announced the notion of HRA or house rent allowance, as part of the income under claimable benefit wherein the chosen percentage of HRA deduction is not taxable.
What Is HRA?
HRA, also popularly known as the house rent allowance, is the amount paid by an employer to an employee, in compensation for their rented accommodation. It is part of the individual salaries of the employees and employees can opt for tax exemption on this particular allowance. If you want to know more about HRA deduction, tap here to learn more.
To know about the HRA deduction or the claimable HR exemption in income tax for different salary brackets, you need to know that three different provisions decide the amount of HRA deduction you are exempted under the tax claimable amount.
Impact of 7th Pay Commission On HRA
In recent months, the government has taken some big decisions for all government employees in regards to the HRA. The initial condition that was levied on employees based on the number of years of the service has now been abolished. Now, if an employee passes away before the completion of seven years of service, his family members or dependents will still receive an amount totaling up to 50% of the pension, with an HRA deduction.
Under the revised version of the 7th pay commission, a demand or recommendation to reduce the percentage of house rent allowance for all employees of different categories in the government was proposed. However, according to the Centre, the house rent allowance has now been increased individually, for X cities, HRA is now 27% of the basic pay, for Y cities it is 18% of the basic pay and for the Z cities, it is 9% of the basic pay. However, with effect from July 1, 2021, the dearness allowance has been increased to 28% of the basic pay instead of 17%. Thus, the two potential major impacts of this new revised HRA under the 7th Pay Commission are as follows.
Increase in Salary For Employees
With an increase in the HRA payable percent, in regards to the basic pay, the net payable for all the government employees increases may pose the application of the revised HRA percentage as per the city tier bracket. This increase in net income can act as a motivation for the employees to work harder and be more efficient to avail better promotion possibilities and increased allowances in the future.
Housing inflation
The second major impact can be housing inflation wherein the accommodation price will increase due to the increase in the HRA amount paid to the employees of the government. It is not mandatory that this price will rise, however, given the increased non-taxable HRA deduction amount for the employees as rent allowance, housing inflation is a big possibility, directly affecting the entire population as a whole.
Overall, to conclude, the Government of India works with the main intention to provide the best for the population, especially the government employees. Amidst this, increasing the dearness allowance as well as house rent allowance can be both beneficial or have adverse effects on the economy, depending on the level of impact that is expected from the same.
