House Rent Allowance (HRA) is a portion of your salary that helps cover your rent if you live in a rented property. It’s a significant benefit for salaried individuals and is provided by employers to assist with housing costs. But did you know you can also use it to save on taxes? The amount of HRA you receive depends on your salary, where you live, and the city’s living costs. Now, how do you calculate the HRA deduction? HRA calculator is the tool.
An HRA calculator streamlines this process. It addresses the complexities of HRA tax exemption regulations and rental calculations. If you’re renting a place and earning a salary, an HRA calculator can help you figure out how much you can save on taxes.
Let us show you how you can calculate HRA online!
What is HRA?
House Rent Allowance (HRA) is a benefit provided by employers to help employees cover their rent expenses. HRA forms part of the salary and is calculated based on multiple factors.
Salary for HRA
For HRA calculation, “salary” includes the basic salary and DA. The salary is considered on a due basis for the period during which the accommodation is occupied.
City of Residence
The HRA calculation differs if you live in a metro city compared to a non-metro city.
Company’s Salary Structure
HRA also varies according to the company’s policies.
Employers typically provide a fixed percentage of the basic salary as HRA. Additionally, HRA can be tax-exempt under Section 10(13A) and Rule 2A of the Income Tax Act, 1961.
How House Rent Allowance is Calculated
You can do it based on the least of the following three amounts:
- Actual HRA received from the employer.
- 50% of the basic salary if living in a metro city (Delhi, Mumbai, Kolkata, or Chennai) or 40% if living in a non-metro city.
- Actual rent paid minus 10% of the basic salary.
Calculate HRA Formula
The formula to calculate HRA exemption is:
- HRA Exemption = Minimum of:
- Actual HRA received.
- 50% of Basic Salary + DA (for metro cities) or 40% (for non-metro cities).
- Actual rent paid minus 10% of Basic Salary + DA.
How to Calculate HRA?
Here’s an example to show you how to calculate HRA online:
Let’s say you have:
- Basic Salary (per annum): ₹25,000
- Dearness Allowance (per annum): ₹10,000
- HRA Received (per annum): ₹15,000
- Total Rent Paid (per annum): ₹12,000
If you do not live in a metro city, here’s how to calculate the HRA exemption:
- Actual HRA Received: ₹15,000
- 40% of (Basic Salary + Dearness Allowance):
- 40% of (₹25,000 + ₹10,000) = 40% of ₹35,000 = ₹14,000
- Rent Paid in Excess of 10% of Basic Salary + Dearness Allowance:
- 10% of (₹25,000 + ₹10,000) = 10% of ₹35,000 = ₹3,500
- Rent Paid – 10% of Salary = ₹12,000 – ₹3,500 = ₹8,500
HRA Exemption Calculation
The exempted HRA is the lowest of these three values:
- Actual HRA Received: ₹15,000
- 40% of Basic Salary + Dearness Allowance: ₹14,000
- Rent Paid in Excess of 10% of Salary: ₹8,500
Therefore, the exempted HRA is ₹8,500.
Now, to avoid the hassle of such mathematical calculation, you can simple use an HRA calculator!
What is an HRA Calculator?
An HRA calculator helps you determine the amount of House Rent Allowance you can claim as tax exemption. To use the calculator, you just have to input details such as your basic salary, dearness allowance (DA), HRA received, and the actual rent paid. It uses the HRA formula to calculate HRA exemption amount you can claim.
The house rent allowance calculator then computes both the exempted and taxable portions of your HRA based on these inputs.
In recent years, living costs in Indian cities have been rising due to inflation and increased earnings. To support employees, many companies provide HRA for those living in rented homes.
Why Should You Use an HRA Calculator?
An HRA calculator can be a convenient tool when it comes to managing your tax savings. Here’s why it’s worth considering:
- Accurate Calculations: It ensures precise calculations of your HRA exemption.
- Time-Saving: With a few simple inputs, the calculator quickly computes your HRA exemption.
- Error-Free: Using a calculator reduces the risk of manual errors.
- Tax Planning: The calculator also aids in better tax planning by showing you exactly how much HRA exemption you can claim.
HRA Exemption Rule in India
HRA exemption rule allows salaried individuals to reduce their taxable income if they live in rented accommodation.
Here are the key rules:
- Eligibility: Only salaried individuals receiving HRA as part of their salary can claim this exemption.
- Calculation: The exemption is the minimum of:
- Actual HRA received.
- 50% of basic salary + DA (for metro cities) or 40% (for non-metro cities).
- Actual rent paid minus 10% of basic salary + DA.
- You must calculate HRA tax exemption and provide rent receipts and proof of rent payments.
HRA Deduction for Salaried Individuals
- Receiving HRA from Employer: You can claim deductions under Section 10(13A) and Rule 2A of the Income Tax Act, 1961.
- Not Receiving HRA from Employer: You can claim a deduction for rent paid under Section 80GG of the Income Tax Act, 1961.
HRA Deduction for Self-Employed Individuals
- Self-employed individuals can claim rent paid as a deduction under Section 80GG of the Income Tax Act, 1961.
Essential Conditions for Claiming House Rent Allowance (HRA) Tax Exemption
To claim House Rent Allowance (HRA) tax exemption, there are several key conditions that you must meet:
- Rent Payment: You must have paid rent to your landlord.
- Proof of Payment: If you’re calculating your HRA exemption, it’s essential to keep proof of payments, especially when paying rent to family members like your parents.
- Rent Receipts: You must keep rent receipts for the concerned financial year. This is important when determining how much HRA can be claimed.
- Single Deduction: Deductions can be claimed under either Section 10(13A) or Section 80GG, but not both.
- HRA Exemption Rule: The maximum HRA deduction, as specified by the HRA exemption rule, can be up to the actual HRA component received from your employer.
When using an HRA calculator or calculating HRA online, understanding how to calculate HRA is important. The calculation generally involves considering your salary for HRA and applying the appropriate HRA deduction and tax exemption rules.
Documents Required for HRA Exemption Claim
To claim HRA exemptions, you will need:
- PAN Card: A copy of your PAN card.
- Landlord’s PAN Card: A copy of the landlord’s PAN card.
- Rent Receipts: Receipts for the rent paid during the financial year.
- Rent Agreement: A copy of your rent agreement.
Conclusion
Using an HRA calculator is the easiest way to determine how much House Rent Allowance you can claim for tax exemption. By inputting your salary details, you can quickly see the HRA deduction and ensure you’re optimizing your tax savings.
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FAQs| HRA Calculator
HRA is calculated based on the smallest of three amounts: the actual HRA you receive, 50% of your basic salary plus dearness allowance (DA) if you live in a metro city (or 40% if you live in a non-metro city), or the actual rent you pay minus 10% of your basic salary.
The HRA exemption is the least of these three: actual HRA received, 50% of basic salary + DA for metro cities (40% for non-metro), or actual rent paid minus 10% of basic salary + DA.
If you live in a metro city, you can claim up to 50% of your basic salary plus DA as HRA exemption. For those residing in non-metro cities, the exemption can be up to 40% of the basic salary.
The maximum exemption you can claim for HRA is the lowest of these three: the actual HRA received, 50% of your basic salary plus DA (for metro cities) or 40% (for non-metro cities), or the rent you pay minus 10% of your salary.
No, HRA does not fall under Section 80C. Instead, it is exempt under Section 10(13A) of the Income Tax Act.
No, you need to provide rent receipts to claim HRA. However, if your rent is below ₹3,000 per month, some employers might not require receipts.
Yes, you can pay rent to your parents and claim HRA deductions.
Source- Nsdl
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