HRA Calculation and Exemption - Calculate your House Rent Allowance

What is HRA?

HRA refers to Housing Rent Allowance. Employers provide HRA to their salaried employees to help with rent payments. The HRA received by employees is eligible for certain tax deductions under Section 10(13A) of the Income Tax Act of 1961^#.

How to Calculate HRA Exemption?

If you receive an HRA from your employer, you must understand how to calculate the exemption. You are eligible to receive an exemption that is the lowest of the following amounts:

• The actual HRA you receive
• 50% of your income (basic salary + dearness allowance) if you live in a metro
• 40% of your income (basic salary + dearness allowance) if you do not live in a metro
• Actual rent paid less 10% of your income (basic salary + dearness allowance)

HRA Exemption/Deduction

Let’s look at how the exemption and deduction work with an example. Mr Sharma works in Mumbai and earns INR 60,000 per month. He pays a monthly rent of INR 15,000 and receives a monthly HRA of INR 20,000. Let’s see how he can calculate his HRA:

• Actual HRA received = INR 2,40,000 per year
• 50% of income (since Mumbai is a metro) = INR 3,60,000 per year
• Actual rent paid less 10% of income = 1,80,000 – (10% of 7,20,000) = 1,80,000 – 72,000 = 1,08,000

Since the lowest amount of the three equals INR 1, 08,000, Mr Sharma can deduct INR 1, 08,000 from his taxable income.

It is important to understand the exact amount that is taxable. For any salaried person, the complete amount received as HRA may not be exempt from tax. Therefore, the whole procedure of HRA calculation and exemption must be clearly understood. There are certain parameters that decide what HRA is going to be or what is the limit of HRA exemption that can be had. Actually, HRA is the lowest of the below mentioned four factors:

1. The actual amount received as HRA from the employer.
2. The rent that you have actually paid reduced by 10% of the salary.
3. 50% of the basic salary, in case the place of residence of the tax payer is in a metro location.
4. 40% of the basic salary, in case the place of residence of the tax payer is in a non-metro location.

This also forms the basis of salary re-structuring (done by the employer) to help the employee save on taxes. This is helpful because the lowest of the above mentioned factors is eligible for exemption from income taxes.

In several cases, there have been instances when a person residing in an accommodation owned by her/his parents has claimed HRA tax exemption. However, this benefit can be availed of only if the property/residence in question is actually owned by the parents and the income from this rent (given by you) is stated as income by them while filing the income tax returns.

For the persons who live independently and pay rent to the tune of more than 1 Lac per annum, for claiming HRA tax exemption, the submission of the landlord's PAN card is mandatory. There is an important pointer here however. There may be salaried persons who do not get any HRA from their employers. Even such employees can seek tax exemptions under Section 80 GG of the Income Tax Act.

To understand the HRA exemption process in detail, it is important to understand with the help of a practical example. Let's take the example of a person X. Suppose X lives in New Delhi in a rented accommodation, where she pays Rs 10000 as monthly rent. Suppose X's basic salary per month is Rs 50000 and an annual component of Rs 1 Lac as HRA is also part of her annual salary package.

Then,

Actual HRA received by X = Rs.100000

Rent that she pays reduced by 10% of her basic salary = 120000 - 60000= 60000

50% of X's basic salary = 50% of Rs 600000 = 300000

Least of the above is Rs. 60000.

Therefore, X is eligible for HRA exemption of Rs 60,000.

You can calculate your HRA exemption online by providing certain basic information regarding your salary, location, HRA received etc.  

HRA Rules

You must know all the HRA conditions to claim the relevant deduction. The HRA rules are as follows:

• Individuals can claim the HRA exemption if they pay rent to landlords or their parents as long as they furnish the rent receiver’s PAN with their tax documents.
• Taxpayers must submit rent receipts as proof to avail of the benefit.
• The PAN details are required for all rent amounts that exceed INR 1, 00,000 per year.
• Individuals cannot claim HRA exemptions if they reside in their own homes.

How to Claim for HRA?

Claiming an HRA deduction from your taxable income requires some paperwork. While filing taxes, you must furnish rent receipts and the landlord’s PAN if the rent amount exceeds INR 1, 00,000 per year. Alternatively, you can provide these documents to your employer to compute HRA exemption while deducting TDS. The Income Tax department verifies the information received through their portals, so you must always be honest about the amounts received and paid.

Claiming a Deduction under Section 80GG:

Salaried individuals who do not receive an HRA but live in rented properties can claim deductions under Section 80GG of the Income Tax Act#. You can claim a deduction under Section 80GG if you fulfil the following conditions:

• You are self-employed or salaried
• You have not received HRA at any time during the year for which you are claiming 80GG^#.
• You or your spouse or minor child or HUF do not own any residential accommodation in the city where you currently reside.
• As per Rule 11B, you are required to file a declaration in Form No. 10BA to claim deduction under section 80GG^# giving details of rent payment

The claim amount will be the lowest of the following:

• INR 5,000 per month
• 25% of your total income before allowing deduction for any expenditure under Section 80GG
• Actual rent as long as it is less than 10% of the total income

Save Additional Taxes with Insurance

Your HRA provides tax exemptions, but there are other ways to plan your taxes. Purchasing a life insurance policy helps you protect your family’s financial future while providing tax exemptions in the present. You can claim a deduction of up to INR 1, 50,000 per year from your taxable income under Section 80C of the Income Tax Act. Additionally, the life insurance payout provided to you and your beneficiary is exempt from taxes under Section 10(10D) ^#.

You must invest in healthy channels and comprehensive plans to build a solid financial foundation. Along with your HRA, look for HDFC Life plans like ULIPs and term insurance plans to boost your tax savings and enjoy a stress-free life.

For building up your financial base, it is important for you to invest in healthy channels and comprehensive plans. HDFC Life offers several savings and investment plans that help you reach the pinnacle of your financial strength. For details, click on the mentioned link: https://www.hdfclife.com/savings-plans .

Calculate HRA

Disclaimer

^# The above stated tax benefits are subject to the provisions & conditions mentioned in the existing Income Tax Act, 1961. Tax Laws are also subject to change from time to time. This material has been prepared for information purposes only, should not be relied on for tax or accounting advice. It is requested to seek tax advice of your Chartered Accountant or personal tax advisor with respect to your personal tax liabilities under the Income-tax law.

ARN – ED/01/23/31297