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• # How to Calculate HRA from Basic Salary - HRA Calculation with Example

## What is HRA (House Rent Allowance)?

HRA or the House Rent Allowance is an amount paid by employers to employees as a part of their salaries. It provides employees with tax benefits for what they pay towards accommodations every year. The decision of how much HRA needs to be paid to the employee is made by the employer based on certain criteria like the salary and the city of residence. The house rent allowance is regulated by the provisions of Section 10(13A) of the IT Act.

House rent allowance benefits are only available to salaried individuals. Self-employed individuals are exempt from claiming HRA. This exemption is also available only if the employee is living in rented accommodations. In case the employee lives in his/her own house and does not pay any rent, he/she cannot claim HRA.

In case the employee is living in a rented accommodation and the rent paid exceeds Rs.1 lakh in one financial year then the PAN details of the landlord need to be submitted along with the HRA claims.

## How is HRA Decided?

HRA is actually decided based on the salary. There are some other factors that affect it which could include things like the city in which the employee resides. If the place of residence is a metro city then employees are entitled to an HRA equal to 50% of the salary. For all others cities the entitlement is 40% of the salary.

For the purpose of calculating the HRA, the salary is defined as the sum of the basic salary , dearness allowances and any other commissions. If the employee is not receiving a dearness allowance or commissions then the HRA will be 50%/40% of the basic salary.

The actual HRA offered will be the lowest of the following three provisions:

• The amount received as the HRA from the employer.
• Actual rent paid less 10% of the basic salary.
• 50% of the basic salary if staying in a metro city and 40% in a non-metro city.

## House Rent Allowance (HRA) Calculation

The House Rent Allowance (HRA) is an essential component of an individual's salary that defines the total amount allotted by the employer towards the employee's accommodation as rent. The HRA amount can be beneficial for an employee as it is calculated for tax deductions for a particular financial year. The HRA helps in reducing the taxable income that you are liable to pay. The HRA tax benefits are only applicable for those employees who stay in a rental accommodation. If an individual is staying in his/her own house, he/she won't be eligible to claim the amount for tax deductions. The calculation of HRA is based on various factors, such as the entitlement to 50% of the basic salary, if the employee is staying in a metro city (40% for other cities). The calculation of HRA for tax benefit is considered from one of the following three listed provisions:

• The actual amount allotted by the employer as the HRA.
• Actual rent paid less 10% of the basic salary.
• 50% of the basic salary, if the employee is staying in a metro city (40% for a non-metro city).

The least of the above mentioned amount will be considered for tax deduction from HRA.

## How to Calculate HRA

To understand how to calculate HRA let us return to the example of Ravi Bajaj. He stays in Mumbai and pays a rent of Rs. 10,000 per month. His payslip is shown below.

## Example Payslip:

Employee No - 1234 Name - Ravi Bajaj
Joining Date - 21/12/2012 PF No - SB/AYE/1234567/123/1234567

BASIC 30,000 PF 2,000
HRA 13,000 Professional Tax 200
CONVEYANCE 2,000
SPECIAL ALLOWANCE 3,000
MEDICAL 1,250
LTA 5,000
Total Earnings 54,250

For calculating Raviâ€™s HRA that is exempt from Income Tax we have:

Salary - Rs. 30,000 per month (the basic salary will be considered in this case since there is no commission or dearness allowance)
HRA provided by company â€“ Rs. 13,000 per month
10% of basic salary (10% of annual basic salary) â€“ Rs. 36,000

Now we calculate the three scenarios:

• Amount received as HRA from employer = Rs. 13,000 X 12(months) = Rs. 1,56,000
• Actual rent paid less 10% of basic = (Rs. 10,000 X 12) â€“ Rs. 36,000 = Rs. 84,000
• 50% of basic salary since he lives in a metro = Rs. 1,80,000

In the case of Ravi, it is evident that the HRA amount which will be exempt from tax will be Rs. 84,000 because that is the amount that is the least of the three scenarios.

## HRA claim rules

The following rules are applicable for HRA claims:

• The HRA cannot exceed more than 50% of your basic salary.
• You cannot claim for the full rental amount you are paying. The exemption is based on the least of the following options:
1. The actual amount allotted by the employer as the HRA.
2. Actual rent paid less 10% of the basic salary.
3. 50% of the basic salary, if the employee is staying in a metro city (40% for a non-metro city).
• You can take advantage of tax benefits of HRA along with a home loan.
• If you are staying with your parents, you can pay rent to your parents and collect a receipt for HRA claim. However, the rules don't allow you to pay rent to your spouse.
• The landlord's PAN card is mandatory for rent exceeding Rs.1,00,000 per year. The landlord can provide a self-declaration in case if he/she doesn't have a PAN card.
• If your landlord is an NRI, you must deduct 30% tax from the rent amount that needs to be declared.

## Benefits of HRA

The biggest benefit of the house rent allowance is that it provides for an avenue to reduce the taxable income , which in turn leads to a reduction in the tax that you have to pay.

## FAQ

1. Can anyone claim HRA?

No, not everyone can claim HRA. House rent allowance is afforded to those who are living in rented accommodations. It is not applicable for self-employed individuals and those who live in their own houses.

2. Can I claim HRA if I live in my own house?

No. If you live in your own house you cannot claim HRA.

3. Can I claim HRA and deduction on home loan interests?

There may be a situation where you own a house but still choose to stay in a rented accommodation because it happens to be closer to your office or because your place of work is in another city. In such a situation you can claim house rent allowance and exemptions on the home loan interest at the same time.

4. When do I have to provide the PAN information of my landlord?

If the annual rent paid by you exceeds Rs. 100,000 in one financial year, the landlordâ€™s PAN details need to be provided.

5. Do I have to produce rent receipts while claiming HRA?

If the rent paid every month is up to or less than Rs. 3,000 then rent receipts need not be provided. If the monthly rent does exceed Rs. 3,000 then rent receipts will be needed.

6. I live in a house owned by my spouse and pay rent to my spouse. Can I claim HRA?

Technically there is nothing illegal about paying rent to a spouse as long as they, the spouse, show it as an income and declares it. There must also be a record of this transactions because if the IT departments decides to take a closer look at your case and finds discrepancies, it might lead to trouble.

7. . Is it possible to claim the HRA for two houses?

No, the HRA benefits are available for only one house in the concerned city of the workplace.

8. . What are the documents required for HRA exemption?

In order to apply for HRA exemption, you will require producing the Rent Receipts. If your rent amount exceeds Rs.15,000 per month, then either the PAN card of the landlord or a written consent (stating the PAN is not available) from the landlord is required.

9. . Is Dearness Allowance included in the HRA?

The Dearness Allowance (DA) is the components that are associated with the retirement benefits. The HRA is a type of remuneration the employer offers to support your rental amount towards accommodation. Hence, the DA and HRA are two different components and not merged together.

10. . Does HRA include maintenance charges?

No, the HRA is paid towards rent only. You won't be able to claim the maintenance fee as HRA. The maintenance charges are not considered as the landlord's earnings to be calculated for his/her income tax.

11. . Does HRA include electricity charges?

No, you won't be able to claim the electricity charges as HRA. The electricity charges are not considered as the landlord's earning since it is paid to the electricity provider.

12. . How to claim HRA without landlord's PAN card?

If the annual rent exceeds Rs 1,00,000 per annum, it is mandatory for the employee to obtain the PAN card from the landlord. The PAN card will be required as a proof while submitting the HRA claim. If the landlord does not have a PAN, a declaration needs to be obtained that will include details such as landlord's name, address, the rent amount you are paying, and the period of accommodation.

13. . Does HRA come under 80C?

No, Section 10(13A) is for House Rent Allowance (HRA).

14. . When is HRA is applicable?

HRA is applicable for individual who stay in rented accommodation. It is a part of the salary that is given by the employer to support the employee's accommodation.

## News About How to Calculate HRA from Basic

• ### How to claim HRA exemption at the time of filing income tax returns

House Rent Allowance (HRA) has been a confusing head for most salaried individuals when it comes to claiming exemptions on House Rent Allowance (HRA) while filing Income Tax Returns (ITR). It is important to keep in mind that the tax benefits on HRA are applicable only if an individual is residing in a rented house. The tax benefit is not applicable for individuals who live in their own houses.

The exempted HRA amount will be reflected in the tax projection statement way before the Form 16 is given out. The employer deducts the HRA from the salary. The deduction can be viewed in Part B of Form 16. The following steps are to be followed to claim House Rent Allowance (HRA) exemption at the time of filing the Income Tax Returns (ITR).

Declaration of the rental to the employer: This is the best and the most effective way to get exemptions in regards to HRA. Mentioning the amount of exemption in the declaration form provided by the employer to the employee at the beginning of a financial year. The Director of Deloitte Haskins and Sells LLP, Aarti Raote said that it is advisable for the employees to claim HRA through the payroll as it will help avoid the mismatch between the actual tax returns and Form 26AS.

Claiming at the time of filing yearly tax returns: In case an employee is not able to claim the tax exemptions on the HRA through the employer, he or she can do the same at the time of filing the annual Income Tax Returns (ITR). On this context, Raote said that this can be done by calculating the amount of exemption for HRA and furnishing the same in the designated place provided in the return form under the salary appropriate schedule.

20 July 2018

• ### Higher education in India gets a Rs.8,000 crore boost

The Union Cabinet has recently approved a proposal for expanding the scopes of Higher Education Financing Agency (HEFA). This lead to the expansion of the capital base of HEFA to Rs.10,000 crore which will now enable it to mobilise Rs.1 trillion by the end of 2022. The decision was taken to increase the investment in higher educational institutions.

While addressing the reporters after the end of the Cabinet meeting chaired by Prime Minister Narendra Modi, the Union Minister Ravi Shankar Prasad said that the government wants to increase the investments in higher education. The announcement for the same was made in the last budget and HEFA was established pertaining to that. Prasad further said that the authorised capital has increased from Rs.2,000 crore to Rs.10,000 crore with the view of extending benefits to the central government universities and other new varsities through Higher Education Financing Agency (HEFA). Earlier, these universities did not receive the advantages and thus, this decision was taken at the cabinet meeting.

In the Union Budget 2018, the then Finance Minister Arun Jaitley had made an announcement of a new initiative of the government - â€˜Revitalising Infrastructure and Systems in Education (RISE)â€™. It was announced with the aim of setting up investments in research and related infrastructure in premier educational institutions. The estimated schematic budget of the government for expenditure on health, education, and social protection is Rs.1.38 trillion for 2018-19, as opposed to the expenditure of Rs.1.22 trillion for 2017-18.

12 July 2018

• ### GST on jet fuel: Airlines can earn Rs 5,220 crore input tax credit

In a meeting chaired by Mr. Jayant Sinha, the minister of state for civil aviation, top executives at Indian carrier has given an assessment which shows that airlines will be able to earn a combined input tax credit worth Rs.5,220 crore if Goods and Services Tax (GST) is applied on jet fuel . This input is 5 times the present input.They also assessed that the government will not lose tax revenue if jet fuel comes under the GST regime. Rather, it will earn Rs.10,353 crore which is 7% more than what it is getting presently.

28 May 2018

• ### Salary Restructuring Could Be On The Cards Due To GST

The AAR (Authority of Advance Ruling) recently issued an order according to which when your employer offers you food and recovers the cost by subtracting it from your salary, it qualifies as an outward supply. As such, GST will be charged on the same. Although the rate of GST applicable on the same has not been set, it will soon be confirmed, according to sources. Since the compliance is increasing along with tax payments, employers are expected to deduct GST from employeesâ€™ monthly salaries. If so, employers will have to increase their employeesâ€™ CTC so that these tax payments can be made.

17 April 2018

• ### 24% Increase in GST Registered by Haryana

Although most of the states in India have recorded a decline in tax revenue following the implementation of the Goods and Services Tax in July 2017, Haryanaâ€™s revenue has risen by 24.1% in the previous financial year from the previous tax regime. Haryana also recorded an increase of 8% in revenue collection from excise on liquor over the same period of time when other states recorded decreases in revenue owing to an order that banned the grant of licenses close to national highways, issued by the Supreme Court. Between the 1st of April and the 30th of June 2017, CST and VAT were applicable, and GST came into effect from the 1st of July. In comparison with the previous financial year, collections from excise of liquor in FY 2017-18 was recorded at Rs.5,028.11 crore â€“ a considerable increase from the Rs.4,655.84 crore recorded in FY 2016-17.

11 April 2018

• ### Property Tax Increment Not a Hike, In Fact a Rateable Value

Municipal Commissioner, Tukaram Mundhe recently stated that the hike that was recently instituted on properties was in fact a rateable value. Furthermore, he added that the properties that are already in existence will not go through an astronomical increase, as claimed by a BJP official!

Tukaram Mundhe further explained that every property tax consists of two main components. The first one being the building and the second one being the land - both non-agriculture and agricultural land.

The tax for agriculture is levied on the product whereas the property tax is applied on the land.

6 April 2018

• ### Income Tax Returnsâ€™ Unanticipated Surge Spreads Wave of Cheer

With an increase in the number of tax filers, the total number of income tax returns filed with accuracy hiked enormously to 6.84 crore, which is a 26% increment as compared to previous yearâ€™s numbers.

This has happened because of the IT Departmentâ€™s continual efforts in carefully scrutinising non-filers via means such as statutory notices, warnings, emails, and outreach programmes. This statement was made by the Central Board of Direct Taxes or CBDT.

In the financial year 2018-19, the total number of individuals filing income tax returns has risen to 99.45 lakh.

4 April 2018

• ### Collection of Property Tax Gains Momentum

The financial year is coming to a close and the collection of property has been gaining momentum. Rs.165 crore has been collected so far this year, but the demand is Rs.193 crore. Around 9,000 new assessments have come under the tax ambit over the course of the year. A further 13,000 have changed their tax category from residential to commercial, revealed R.Somannarayana, the Deputy Commissioner (Revenue). Collection of water tax, however, has not been up to par. Only Rs.22 crore has been realised out of the overall demand of Rs.42 crore.

29 March 2018

• ### Kerala finance minister highlights disparity in tax allocation

The finance minister of Kerala, Thomas Isaac, has invited the finance ministers of the states in South India on 10th April for a discussion on the tax allocation disparity witnessed recently. He said that all the finance ministers and finance secretaries of the states have confirmed their attendance.

There was friction over the division of funds after the Central government recommended to the 15th Finance Commission that the population data for the 2011 Census should be considered for distribution of the central tax revenues, instead of the 1971 Census. Isaac said that this will worsen the Central-State fiscal imbalance. He also mentioned that the use of the population from 2011 instead of 1971 will punish states that followed the national family planning policies to control the growth of the population.

Andhra Pradesh CM Chandrababu Naidu had earlier made a comment on southern states contributing maximum tax revenue that were getting diverted to the North Indian states for development.

28 March 2018

• ### Highlights of the 2018 Punjab Budget

Amarinder Singh, the Chief Minister of Punjab, was in attendance as Manpreet Singh Badal, the Finance Minister of the state recently presented the budget proposals for FY 2018-19. The main focus areas of the state will be farmer welfare and agriculture along with industry, students, employees and health. The overall size of the budget was Rs.1,29,698 crore and its effective size is Rs.1,02,198 crore. A proposal made in the budget was to raise Rs.1,500 crore via extra resource mobilisation measures. The state is also expected to offer free text-books to students between Class I and Class XII among other initiatives.

27 March 2018

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