House Rent Allowance (HRA) is a component of a taxpayer’s salary that reduces his/her tax liability, provided he/she stays in a rented accommodation. It is possible to calculate the amount of HRA that will be exempt from tax using online HRA Exemption Calculators. It can also be calculated manually.
How is HRA Decided?
HRA is mainly determined by your salary. As per the income tax rules, the tax-exempt part of the HRA (House Rent Allowance) is the minimum of the following amounts:
- Actual HRA component of salary
- 50% of basic salary if he resides in Delhi, Chennai, Kolkata, or Mumbai; 40% if his residence is in any other city
- Actual rent paid less 10% of basic salary
HRA Calculation with Example
Let us consider the scenario of a salaried individual, Mr. Ganesh, who resides in Delhi. He lives in a rented accommodation and pays a monthly rent of Rs.10,000. This amounts to Rs.1.2 lakh annually. The table below shows his monthly earnings:
|Leave Travel Allowance (LTA)||Rs.5,000|
There is a Provident Fund contribution of Rs.2,000 and professional tax of Rs.200 that is deducted from his salary each month.
In Mr. Ganesh’s example, the tax-exempt part of his HRA would be the lowest of the following, considering his earnings on an annual basis:
|Actual HRA component of salary:||Rs.13,000 * 12 = Rs.1.56 lakh|
|50% of his basic salary, as he stays in Delhi:||50% * Rs.30,000 * 12 = Rs.1.80 lakh|
|Actual rent paid minus 10% of basic salary:||(Rs.10,000 * 12) - (10% * Rs.30,000 * 12) = Rs.1.2 lakh – Rs.36,000 = Rs.84,000|
Since Rs.84,000 is the lowest value above, this is the amount of tax-exemption Mr. Ganesh can receive on HRA. The rest of the HRA amount received will be taxed as per his income slab.
Tax Benefits for HRA
- The actual rent you pay must be lower than 10% of your basic pay
- The actual amount granted as HRA by your employer
- 50% of the basic salary in case you live in a metro, and 40% if you reside elsewhere
Documents Required to Claim Tax Exemption on HRA
The taxpayer will have to submit his/her rent receipts in order to avail tax exemption on HRA. In case the individual is living in a rented accommodation and the rent paid exceeds Rs.1 lakh in a financial year, then the PAN details of the landlord need to be submitted along with the HRA claims. The landlord can provide a self-declaration in case he/she doesn't have a PAN card.
Q) I have forgotten to submit rent receipts to my employer. How can I claim HRA tax benefit now?
Ans: In this case, you can claim the tax benefit on HRA at the time of filing income tax returns. You will have to keep the proof of rent payment handy, as you may be required to submit these documents to the Income Tax department to authenticate your claim.
FAQs on HRA (House Rent Allowance)
1. Can anyone claim taax exemption on HRA?
Ans: No, not everyone can claim tax exemption on HRA. Although HRA is part of the salary of most employed individuals, the exemption can only be availed by those who pay rent. HRA exemption is also not applicable for self-employed individuals.
2. Can I claim tax exemption on HRA and deduction on home loan interests at the same time?
Ans: Yes, this is possible. You may be living in a rented house in one city while you own a house (for which you are repaying a home loan) in another city.
- You can claim tax exemption on HRA for the rent paid.
- You can also claim tax deduction on the home loan interest paid.
- Tax deduction can be claimed on home loan principal repayment as well.
3. Can I claim HRA tax exemption when paying rent to a family member?
Ans: You can claim tax exemption on HRA if you are paying rent to your parents. However, you should have sufficient documents that serve as proof of this transaction.
4. HRA is not part of my salary, but I stay in a rented accommodation. Can I get any tax benefits?
Ans: If an individual pays rent for an unfurnished/furnished house, he/she can claim tax deduction on the rent paid (under Section 80 (GG) of the Income Tax Act), provided HRA is not part of his/her salary. He/she should furnish Form 10B for this purpose.
5. Can the maintenance charges that I pay for my apartment be included for HRA tax exemption?
Ans: No, HRA exemption can be claimed only for the rent paid. You won't be able to claim tax deduction for the maintenance or electricity charges. These charges are also not considered as the landlord's earnings when calculating his/her income tax.