CLA v/s HRA

Several firms provide the option of taking CLA ( Company Leased Accomodation) or HRA ( House Rent Allowance). For new joinees, there is often confusion about which option should be taken for better tax planning. This post is intended to clarify on which would be the better option.

Before proceeding to the calculations, the difference between the two are as below.

In case of HRA

HRA is a scheme wherein part of your salary is given as HRA by the firm and you save on Income Tax as per the current income tax laws on the rent paid by you to the owner subject to the below rules.

The exemption is limited to the minimum of the three below.

1. 40 % of your basic pay
2. actual HRA paid by the firm.
3. Actual rent paid by you to the house owner - - 10% of basic pay

In case of CLA

In the CLA scheme, the firm leases a house for you to stay in and enters into an agreement with the owner of the house. The firm would not provide you with an HRA allowance in this case but the amount mentioned as HRA would come as your taxable income after reducing the rent amount.

You need to pay 15% tax as per the current perquisite tax rules on the actual rent paid by the firm on your behalf.

But the benefit is that the company would usually pay the Rent Deposit on your behalf. This would mean you will have more money in your bank account/savings/stock certificates and hence get interest/returns on that amount.

How Both Schemes Work

HRA

1. You find a house to stay in and enters into an agreement with the house owner of your own
2. You pay the initial deposit amount from your account to the house owner
3. Each month you pay the rent to the owner
4. A part of your salary is marked as HRA by the firm
5. You save on tax by submitting the original rent receipt to your firm
6. The tax exemption is as per the rules mentioned above

CLA

1. You find a house to stay in and Informs the firm
2. The firm enters into an agreement with the house owner
3. The firm pays the initial deposit amount to the house owner
4. Each month the firm pays the rent to the owner
5. The firm deducts the rent amount from your salary
6. The government charges 15% tax on the rent amount
7. You have the initial deposit money with you ( as you do not have to pay it) and get returns/interest on that money

Question

How do i save under CLA scheme if I have to pay extra tax where as in HRA I am getting tax exemption ?

Answer

The higher your rent amount compared to your basic , CLA becomes more attractive. Calculations follow.

HRA v/s CLA comparison in numbers

This form intends to compare HRA and CLA to help you choose the best of the two options.

• Monthly Basic Pay
  

  Enter your Monthly Basic pay

• Monthly Rent
  

  Please enter your monthly rent

• Monthly HRA claimed
  

  Please enter your monthly HRA claimed

• Your tax slab
  

  Please enter your tax slab. If you are in 10% slab enter, 10, in 20% slab enter 20, in 30% slab enter 30.





• Expected Returns on Savings
  

  Please enter your expected returns as a whole number on the savings which you will have on the deposit amount.
  10% =>10
  8%=>8





• House Deposit Amount
  

  Please enter your Deposit Amount.
  





• 
  

HRA	CLA
Tax savings on HRA Net tax to be paid on the house rent amount after the savings	Tax to be paid on CLA Net tax after adjusting for returns from deposit amount
Choose the option which ever gives you lesser tax on the rent amount

Form Created with the help of pForm

The tax implications are calculated assuming a fixed slab for your income. If your income is at the border of slabs such that the HRA or CLA takes you from one slab to another, then the tax calculations will be more complex.


Note : This post is not a tax advice and the author is not responsible for any tax implications arising out of decisions taken by you.