HRA Calculator
(Calculate the tax-exempted HRA you get as per your salary)
The HRA (House Rent Allowance) calculator is an easy-to-use tool that helps salaried people calculate how much of their HRA is exempted from tax. You simply need to fill in your basic details, such as your salary, HRA received, and the rent paid. The HRA calculator will instantly inform you about ... your tax liability. This HRA exemption calculator makes the HRA income tax calculation much easier and helps you optimize your savings under Section 10(13A) and Rule 2A of the Income Tax Act, 1961. This tool enables you to manage your tax planning efficiently so that you don't end up paying more taxes than you need to while staying compliant with the law. Use our online HRA calculator to know how much tax you can save so that you can make smarter financial decisions to maximize your tax benefits! Read more
What is HRA?
House Rent Allowance (HRA) is a component of an employee's salary package provided by the employer to cover the cost of renting accommodation. It depends on multiple factors like the company’s policies, salary amount, city of residence, and more.
Wondering why you should learn more about HRA? It not only helps you as an employee to manage your rental expenses but also affects your tax liability in the following ways:
Salaried Individual
- Case 1: You receive HRA
If you receive HRA as part of your compensation, you can claim a tax deduction under Section 10(13A) and Rule 2A of the Income Tax Act, 1961. The details regarding the deduction amount are discussed later in this article.
- Case 2: You do not receive HRA
In case your employer does not pay HRA, you can deduct the amount of rent paid from your taxable income under Section 80GG of the Income Tax Act.
Self-employed Individual: As HRA is not received, self-employed taxpayers can claim tax deduction on the rent paid under Section 80GG.
What is an HRA Calculator?
An HRA Calculator is a valuable online tool that assists individuals in calculating the potential tax benefits associated with their House Rent Allowance.
Under the Income Tax Act, HRA is partially exempt from taxation, subject to certain conditions and limits. The HRA deduction calculator simplifies the process of determining the amount of HRA exemption one can claim while filing income tax returns.
Understanding the HRA Tax Calculation
Let us explore the related provisions to better understand how HRA exemption is calculated:
Basic Salary and HRA Calculation
HRA is paid as a fixed percentage of the employee’s basic salary. For example, if your salary is ₹50,000 per month, and your employer designates 40% as HRA, the HRA component would be ₹20,000 per month (₹50,000 * 40%).
How is the percentage of HRA fixed? It varies as per the company policies and depends on the prevailing rental rates in the area.
Actual HRA Calculation
Once you know how to calculate HRA in salary, you should gain clarity on how much of it will be exempt. The exempted amount depends on multiple factors, such as the actual rent paid by the employee, the HRA received from the employer, the city of residence, and the employee's salary structure.
The lowest of the following three amounts is considered for HRA exemption:
- Actual rent paid minus 10% of the basic salary: This factor ensures that employees are not taxed on a substantial portion of their rental expenses.
- 50% of the basic salary for employees residing in metro cities (40% for non-metro cities): It provides a benchmark for HRA exemption based on the employee's location. In metro cities, where the cost of living is generally higher, employees can claim a higher HRA exemption.
- Actual HRA received from the employer: This ensures that employees do not avail a deduction that exceeds the amount of allowance.
Let’s say that you receive a basic salary of ₹6,00,000 and HRA of ₹1,00,000. You live in Delhi (metro city) and pay rent of ₹3,00,000.
The deduction amount will be the lowest of the following:
- Actual rent paid minus 10% of the basic salary= ₹3,00,000 - (10% of ₹6,00,000) = ₹2,40,000
- 50% of the basic salary= 50% of ₹6,00,000= ₹3,00,000
- Actual HRA received= ₹1,00,000
Thus, you can claim a deduction of ₹1,00,000, which is the lowest of the three figures.
Formula to Calculate HRA Exemption
The basic formula to calculate HRA exemption is as follows:
HRA Exemption = Least of the following:
- Actual HRA received from the employer.
- 50% of the employee's salary for those living in metro cities (or 40% for those living in non-metro cities).
- Excess of rent paid over 10% of salary (basic salary + dearness allowance, if any).
For example, if an employee receives a basic salary of ₹50,000 (HRA of ₹20,000) and pays a rent of ₹25,000 in a metro city, the amount eligible for exemption would be:
| Particulars | Amount |
|---|---|
| Actual HRA received | ₹20,000 |
| 50% of the salary | 50% of ₹50,000= ₹25,000 |
| Excess of rent paid annually over 10% of salary | ₹25,000 - (10% 0f ₹50,000) = ₹20,000 |
| Exempted Amount | ₹20,000 (least of the above three amounts) |
How Can an HRA Exemption Calculator Help You?
Tools like the House Rent Allowance calculator empower individuals to maximize their tax savings and enjoy the following benefits:
Accurate Calculation
An HRA calculator uses the information the user enters, such as basic salary, actual rent paid, and HRA received, to compute the optimal HRA exemption amount. It automates the calculation process, eliminating the margin of error.
Tax Optimization
As mentioned above, calculators can help you save money on taxes as per Section 10(13A) of the Income Tax Act, 1961. You can reduce your tax liability and optimize your financial strategies.
Customized Results
Employees from all walks of life and locations can use the calculator as it provides personalized results based on the user's specific financial information and tax profile.
Time-Saving
You do not have to perform manual calculations and deal with cumbersome paperwork. You can thus save your time and effort. What’s more, the user-friendly interface of HRA exemption calculators does not require specialized technical knowledge.
Scenario Analysis
You can check how your exempted amount will vary if you shift to a different location or your landlord changes the rent. This scenario analysis can help you make informed decisions accordingly.
Compliance Assurance
When you use the house rent calculator, you can accurately find out your tax liability. As a result, you can comply with tax regulations and avoid penalties or legal consequences.
How to Use the HRA Calculator Online?
HRA calculator is a convenient tool designed to help individuals calculate their potential tax benefits related to House Rent Allowance. Here's a step-by-step guide on how to use HRA calculator for income tax:
Step 1: Enter the basic information:
- Basic salary - The Net amount of your salary before any additional benefits or deductions.
- Dearness Allowance - A cost of living adjustment allowance paid to employees by the organization they work in.
- HRA Received - The amount received as House Rent Allowance as part of your salary.
- Total Rent Paid - The total amount of rent you pay for your residence.
- Do you live in metro cities like Delhi, Mumbai, Kolkata or Chennai? - Do you reside in one of these major metropolitan cities?
Step 2: Click on Calculate HRA Exemption.
Benefits of HRA Calculation Using this Calculator
Online tools like the HRA calculator are always recommended as they can help you avoid complex calculations and present the required amount with just a few clicks.
You do not have to worry about making mathematical errors when you use the HRA calculator. It will give you the accurate HRA exemption amount based on salary, rent paid, and location.
There are multiple variables involved in HRA exemption calculation. It becomes difficult to consider all these variables while performing manual calculations. Luckily, online calculators make this process easier and are designed to take all relevant factors into consideration.
The hassle-free and accurate calculations can help you claim your tax deductions and reduce taxable income efficiently.
How is HRA Exemption Calculated for Special Cases?
While the calculation of HRA exemption is relatively straightforward for most cases, special situations may arise that require adjustments to the standard calculation method.
Case 1: Partial Period of Occupancy
In cases where the individual occupies the rented accommodation for only part of the year, the HRA exemption is calculated proportionately. The exemption is computed based on the number of months during which the individual lived in the rented premises and paid rent.
Case 2: Rent Paid to Relatives
If the individual pays rent to a close relative (such as parents, spouse, or siblings), special rules apply to calculate the HRA exemption. In such cases, the individual must provide documentary evidence of the rental arrangement, including a valid rental agreement and proof of rent payment. The HRA exemption is limited to the actual rent paid, and the rental agreement must reflect a genuine landlord-tenant relationship.
Case 3: Living in Own House
If the individual resides in a self-owned house or property, they are not eligible for HRA exemption. However, if the individual owns a house in one city but resides in a rented accommodation in another city due to employment reasons, they can claim HRA exemption for the rent paid.
Case 4: House Owned by Spouse
In cases where the individual's spouse owns the house or property in which they reside, the individual can still claim HRA exemption if they pay rent to their spouse. However, the rental arrangement must be genuine, and the rent paid must be commensurate with prevailing market rates to avoid scrutiny by tax authorities.
Case 5: No HRA Component in Salary
If the individual does not receive HRA as part of their salary package, they are not eligible for HRA exemption under Section 10(13A). However, they may be eligible to claim tax deductions for rent paid under Section 80GG, subject to certain conditions and limits.
Case 6: Change in Rent Amount During the Year
If the rent amount changes during the financial year, the HRA exemption is calculated based on the respective rent amounts applicable for each period. The exemption is prorated accordingly for each period of occupancy at the different rent levels.
Rules to Remember for HRA Deductions
The tax authorities have added various rules to streamline HRA deductions and ensure that only genuine rental expenses qualify for tax benefits.
HRA tax deductions are available only if you live in a rented accommodation. This means that if you live in your own house and receive HRA, no deduction will be available.
Suppose you live in a house owned by your spouse and claim a deduction for rent paid to them. Is this allowed? Yes, HRA deductions are allowed, provided there is a rent agreement.
It may so happen that your landlord is a Non-Resident Indian (NRI). In such a case, TDS @30% will be charged on the rent and the balance amount will be paid to the landlord.
If you have incurred costs related to maintenance, electricity, utility payments, and other expenses at your accommodation, you cannot claim an exemption for them. This is because HRA deductions are limited to rent payments only.
Documents Required for HRA Exemption Claim
To claim an HRA exemption, you need to be diligent about maintaining proper documentation, as specified below.
Rent Receipts
Rent receipts are essential for HRA claims. They should include details such as the landlord's name, address, the amount of rent paid, and the period for which the rent is paid.
The receipts should be signed by the landlord and ideally have revenue stamps affixed (though it's not mandatory).
Rent Agreement
A formal rent agreement between the tenant and the landlord is a crucial document. It outlines the terms and conditions of the rent, including the rent amount, duration of the agreement, and any other terms agreed upon.
Cancelled Rent Cheques or Bank Statements
Canceled rent cheques or evidence of electronic fund transfers can serve as proof of payment. Bank statements reflecting the rent transactions can also be submitted.
Landlord's PAN (Permanent Account Number)
Providing the PAN details of the landlord is mandatory if the annual rent paid exceeds ₹1,00,000. This is a requirement introduced to prevent tax evasion.
Declaration Form (if required)
Employers may ask employees to fill out a declaration form stating that they are paying rent and do not own a property in the specified location.
Form 10BA (if required)
In certain cases, individuals may need to fill out Form 10BA, declaring that they are paying rent and not receiving HRA benefits. This is mostly done for self-employed individuals.
Rental Agreement Utility Bills
Utility bills such as electricity or water bills in the tenant's name can provide additional proof of residence at the rented property.
Occupancy Certificate (if applicable)
In some cases, especially in newer constructions, providing an occupancy certificate may be required to validate the legality of the residence.
Conditions for Claiming HRA Exemption
Claiming an HRA exemption comes with specific conditions. You should meet all the necessary criteria for a successful exemption claim.
Salary Component
The taxpayer must receive HRA as a part of their salary package from their employer.
Rent Payment
The taxpayer must actually incur expenses towards payment of rent for a residential accommodation.
Residential Accommodation
The rented accommodation should be used for residential purposes.
PAN of Landlord
If the annual rent paid exceeds ₹1,00,000, the landlord's PAN (Permanent Account Number) needs to be provided as proof. This is a mandatory requirement.
Own House
The taxpayer or their spouse or minor child should not own a residential property in the city where they are employed or carry on business. However, if the taxpayer lives in a different city, ownership of property in that city does not affect HRA eligibility.
City Classification
The amount of HRA exemption depends on whether the taxpayer is residing in a metro city or a non-metro city. The definition of metro cities for HRA purposes may vary, but it typically includes cities with higher living costs.
Amount of HRA Exemption
The HRA exemption is the minimum of the following three amounts:
- Actual HRA received
- 50% of the basic salary (for employees in metro cities) or 40% of the basic salary (for employees in non-metro cities)
- Rent paid minus 10% of basic salary
Declaration
Employees may need to provide a declaration to their employer stating that they are paying rent for residential accommodation and do not own a house in the specified location.
HRA Rules for Self-Employed Individuals
HRA is associated with salaried individuals. But what happens if you are self-employed and live in a rented accommodation? The following provisions will apply.
Section 80GG Deduction
Self-employed individuals can claim a deduction for the rent paid under Section 80GG of the Income Tax Act.
This deduction is available to individuals who do not receive HRA and do not own a residential property in the location where they reside or carry on their business.
Conditions for Claiming Deduction
To claim the deduction, the taxpayer should not own a residential house at the place where he/she resides or carries on business.
The taxpayer, spouse, or minor child should not own a residential house in the city where the self-employed individual is employed or carrying on business.
The taxpayer must file a declaration in Form 10BA to claim the deduction.
Amount of Deduction
The deduction under Section 80GG is the least of the following:
- Rent paid minus 10% of total income.
- ₹5,000 per month.
- 25% of total income.
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