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Calculate tax exemption on House Rent Allowance

    IndianMoney.com Research Team | Friday, December 19,2014, 06:21 PM
 

house rent allowance

Income and tax are like two sides of the same coin. You have to pay tax on the money you earn.

house rent allowance

So how do you become rich?

house rent allowance

You become rich by saving on your taxes. More you save on tax more is the money you spend on yourself and your family.

Your salary slip

Components of your salary

INR

Basic Salary

400000

Dearness allowance

20000

House Rent allowance

200000

Medical reimbursement

15000

Transport  allowance

9600

Hostel allowance

7200

Children's education allowance

2400

Food coupons

15000

Bonus

178000

Provident Fund

50400

Professional tax

2400

Total 900000

Your Company gives you house rent allowance (HRA) as part of your salary. You get an amount of INR 200000 shown in the salary slip.

Do you have to pay tax on the entire amount you get as HRA?

Calculation of House Rent Allowance (HRA) Exemption

Rule to calculate HRA exemption

  • The HRA (House Rent Allowance) given to you by your Company ...Condition 1
  • The actual rent you pay - 10% * (Basic salary + Dearness allowance) ...Condition 2
  • 50% of (Basic Salary + Dearness allowance) in case you reside in a Metro City and 40% of (Basic Salary + Dearness allowance) if you reside in any other city. ...Condition 3

You have to pay tax on the actual HRA received from the employer minus the amount which is the least among the above three conditions.

You stay in Bangalore with your wife in a rented apartment. You pay a monthly rent of INR 20000.This is INR 240000 a year.

You can calculate the tax exemption on the HRA you receive as follows :

  • You get INR 2,00,000 as a House rent Allowance by your Company shown in your pay slip ...Condition 1
  • You pay INR 2,40,000 a year as rent – 10% * (INR 4,00,000 +INR 20,000) = INR 1,98,000. ) ...Condition 2
  • You reside in Bangalore a non metro city and gets 40% of (INR 4,00,000 +INR 20,000) = INR 1,68,000. ) ...Condition 3
calculate the tax exemption on the HRA

You have to pay tax on the actual HRA received from the employer minus the amount which is the least among the above three conditions.

INR 2, 00,000 - INR 1, 68,000 = INR 32,000.

You have to pay tax only on INR 32000 even though your HRA is INR 200000.You get a tax exemption on the remaining amount.

Calculate tax exemption on the HRA of your friend

Your friend works in Mumbai and has bought a house there. He resides in a rented apartment in Mumbai itself as his newly bought house is far away from his place of work. He gets HRA as part of his salary. Will he get a tax exemption on the HRA component of his salary?

  • In order to avail a tax exemption on the HRA component your friend needs to have it as a part of his salary. He gets this as a part of his salary and can avail a tax exemption on the HRA he gets in his salary.
  • Your friend owns a house which means he cannot avail a tax exemption on the HRA component of his salary. However he does not reside in his own house and stays in a rented house. This means he can avail the tax exemption on the HRA component of his salary.

Calculate tax exemption on the HRA of your cousin

Your cousin has bought a house in Bangalore which is under construction. He has availed a home loan to construct this house. He stays in a rented apartment. He gets HRA as a part of his salary. Will he get a tax exemption on the HRA component of his salary?

  • Your cousin does not reside in his own house as it is still under construction. He stays in a rented house. This means he can avail the tax exemption on the HRA component of his salary.
  • Your cousin can get a deduction up to INR 1.5 Lakhs on the EMI (principal component) of the home loan he avails to construct his house.
  • Your cousin gets no tax benefits on the EMI (interest component) of the home loan till the house is constructed.

Calculate tax exemption on the HRA of your brother

Your brother has availed a home loan and purchased an apartment in your hometown of Bangalore. Can he avail a tax exemption on the HRA component of his salary?

  • Your brother resides in his newly purchased apartment in Bangalore. He cannot avail tax exemption on his HRA even though he gets this as a part of his salary. To get a tax exemption on the HRA he needs to stay in a rented house/apartment.
  • Your brother can avail a deduction under Section 80 C on the EMI (Principal component) of the home loan up to INR 150000.
  • Your brother can also avail a deduction under Section 24 B on the EMI (Interest component) of the home loan up to INR 2 Lakhs.

This article should make you a master in calculating tax exemption on the HRA component of your salary.

IndianMoney.com Research Team

The research team at IndianMoney.com comprises of certified and experienced professionals who share the company's vision to make every Indian financially literate by equipping every Indian with right and unbiased advice. IndianMoney.com research team provides newsletters, articles, videos and FAQs on various financial products and concepts only to help you make wise financial decisions.

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