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HRA Calculator

House Rent Allowance (HRA) is a component of an employee's salary that is specifically designated for meeting the rental expenses of accommodation. ... It is an essential part of many employees' compensation packages, especially in urban areas where owning a house may be financially challenging. HRA provides tax benefits to employees by reducing their taxable income. Read more

Hra Calculator
Exempted HRA --
Taxable HRA --

Why is HRA important?

HRA serves as an important financial tool for both employees and employers. For employees, it helps reduce the burden of paying rent, making housing more affordable.


Additionally, HRA offers tax benefits, allowing employees to save on income tax. Employers use HRA as a means to attract and retain talent, as it is a valuable component of the overall compensation package.

Why is HRA important?

Understanding the HRA Calculation

To better understand how HRA is calculated, let's explore its components and the methods used for calculation.

Components of HRA Calculation

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Basic Salary and HRA Calculation

The HRA calculation is based on the employee's basic salary and the percentage of the basic salary designated as HRA. Typically, employers set the HRA percentage to ensure it aligns with the employee's housing needs and the prevailing rental rates in the area.


For example, if an employee's basic salary is ₹50,000 per month, and the employer designates 40% of the basic salary as HRA, the HRA component would be ₹20,000 per month

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Actual HRA Calculation

The actual HRA calculation involves considering multiple factors, such as the actual rent paid by the employee, the HRA received from the employer, and the employee's salary structure. The lowest of the following three amounts is considered for HRA exemption:

  1. Actual rent paid minus 10% of the basic salary
  2. 50% of the basic salary for employees residing in metro cities (40% for non-metro cities)
  3. Actual HRA received from the employer

Expanding on the actual HRA calculation, let's take a closer look at how each of these factors contributes to determining the HRA exemption.


The first factor, "actual rent paid minus 10% of the basic salary," allows employees to claim an exemption on the portion of rent that exceeds 10% of their basic salary. This factor ensures that employees are not taxed on a substantial portion of their rental expenses.


The second factor, "50% of the basic salary for employees residing in metro cities (40% for non-metro cities)," 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 percentage of their basic salary as HRA exemption compared to non-metro cities.


The third factor, "actual HRA received from the employer," takes into account the HRA amount provided by the employer. This factor ensures that employees receive the intended financial assistance for their housing needs.

How to Calculate HRA tax exemption?

Calculating HRA involves understanding different aspects, such as HRA deduction, house rent allowance calculation, and HRA calculation for income tax purposes.

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Calculate HRA Deduction

To calculate HRA deduction, you need the following information:

  1. Basic salary
  2. HRA received from the employer
  3. Actual rent paid
  4. City classification (metro or non-metro)

Using this information, you can compute the HRA deduction using the formula provided by the income tax department.

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Calculate House Rent Allowance

To understand the calculation of HRA in salary, you should know the HRA percentage and the employee's basic salary. Multiply the basic salary by the HRA percentage to determine the monthly HRA amount.

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Calculate HRA for Income Tax

Calculating HRA for income tax purposes involves taking into account the actual rent paid, the HRA received, and the salary structure. By comparing these amounts, you can determine the HRA component that will be considered for tax exemption.

Expanding on the calculation of HRA for income tax purposes, let's delve into the different factors that influence the HRA exemption.

The first factor is "actual rent paid minus 10% of the basic salary." This factor allows employees to claim an exemption on the portion of rent that exceeds 10% of their basic salary.

For example, if an employee's actual rent paid is ₹25,000 and their basic salary is ₹50,000, the amount eligible for exemption would be:

[₹25,000 - (₹50,000 * 10%)] = ₹15,000.

The second factor is "50% of the basic salary for employees residing in metro cities (40% for non-metro cities)." This factor provides a benchmark for HRA exemption based on the employee's location. If an employee resides in a metro city and their basic salary is ₹50,000, the amount eligible for exemption would be:

[₹50,000 * 50%] = ₹25,000.

The third factor is "actual HRA received from the employer." This factor takes into account the HRA amount provided by the employer. If the employee receives an HRA of ₹20,000, this amount would be considered for tax exemption.

By comparing these amounts, the lowest value among the three will be considered for HRA exemption.

HRA Rules for Self-Employed Individuals

While HRA is typically associated with salaried individuals, self-employed individuals can also benefit from HRA under specific conditions. We'll explore the unique rules and considerations for those who are their own bosses.

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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.

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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.

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Amount of Deduction

The deduction under Section 80GG is the least of the following:

  1. Rent paid minus 10% of total income.
  2. ₹5,000 per month.
  3. 25% of total income.

Documents Required for HRA Exemption Claim

To claim HRA exemption, you need to be diligent about maintaining proper documentation. We'll provide a comprehensive list of documents required, emphasizing the importance of record-keeping for a smooth claim process.

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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).

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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.

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Cancelled Rent Cheques or Bank Statements

Cancelled rent cheques or evidence of electronic fund transfers can serve as proof of payment. Bank statements reflecting the rent transactions can also be submitted.

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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.

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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.

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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.

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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.

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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 HRA exemption comes with specific conditions. We'll outline these conditions and highlight common pitfalls to avoid, ensuring you meet all the necessary criteria for a successful exemption claim.

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Salary Component

The taxpayer must receive HRA as a part of their salary package from their employer.

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Rent Payment

The taxpayer must actually incur expenses towards payment of rent for a residential accommodation.

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Residential Accommodation

The rented accommodation should be used for residential purposes.

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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.

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Rent Agreement

It is advisable to have a formal rent agreement with the landlord, specifying the terms and conditions of the rent, such as the rent amount, duration of the agreement, and any other relevant terms.

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Rent Receipts

Rent receipts should be obtained from the landlord for each month. These receipts should contain details such as the landlord's name, address, the amount of rent paid, and the period for which the rent is paid.

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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.

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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.

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Amount of HRA Exemption

The HRA exemption is the minimum of the following three amounts:

  1. Actual HRA received
  2. 50% of the basic salary (for employees in metro cities) or 40% of the basic salary (for employees in non-metro cities)
  3. Rent paid minus 10% of basic salary
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Declaration

Employees may need to provide a declaration to their employer stating that they are paying rent for a residential accommodation and do not own a house in the specified location.

Frequently Asked Questions

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Disclaimers-

You may avail of tax benefits under Section 80C and Section 10(10D) of Income Tax Act, 1961 subject to conditions as specified in those sections. Tax benefits are subject to change as per tax laws. Customer is advised to take an independent view from tax consultant


The calculation is generated on the basis of information provided and does not constitute an offer or solicitation for the purpose of purchase or sale of any product. Further customer is the advised to go through the sales brochure before conducting any sale.


The Linked Insurance Products do not offer any liquidity during the first five years of the contract. The policyholder will not be able to surrender/withdraw the monies invested in Linked Insurance Products completely or partially till the end of the fifth year


Linked Life Insurance products are different from the traditional insurance products and are subject to the risk factors.


The premiums paid in Linked Life Insurance policies are subject to investment risks associated with capital markets and the NAVs of the units may go up or down based on the performance of fund and factors influencing the capital market and the insured is responsible for his/her decisions. Please know the associated risks and the applicable charges (along with the possibility of increase in charges), from your Insurance agent or the Intermediary or policy document of the insurer.



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Kotak Mahindra Life Insurance Company Ltd ; Regn. No.:107, CIN : U66030MH2000PLC128503, Regd. Office: 8th Floor, Plot # C- 12, G- Block, BKC, Bandra (E), Mumbai- 400 051. Website: https://www.kotaklife.com, |Whatsapp:9321003007 |Toll free No: 1800 209 8800. https://www.kotaklife.com, |Whatsapp:9321003007 |Toll free No: 1800 209 8800.

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