Home Articles HRA Tax Calculation

HRA Tax Calculation

IndianMoney.com Research Team | Updated On Wednesday, December 30,2009, 01:16 PM

5.0 / 5 based on 1 User Reviews

HRA Tax Calculation

HRA stands for House Rent Allowance, it is an allowance provided by an employer to an employee. The main intention of this is to meet the cost of renting a home. Everybody whose salary package includes HRA is potentially eligible to get some deduction in Income Tax. Most, of the government and private employees have HRA as part of their salary package. In order to get income tax deduction for HRA, you must be paying rent for your accommodation; merely receiving HRA won’t help you to get tax benefit.

Are you eligible for deduction under HRA…..??? We have designed and prepared this article to make you understand how you can claim tax deduction for HRA and what is the maximum tax exemption limit allowed for that. You can get tax deductions on HRA only if you are paying a rent of more than 10% of your salary. In majority cases, the rent, especially in cities is well above salary. For the purpose of discussion on HRA, salary means your Basic + Dearness Allowance (DA).

Most of us think and are of the opinion that whatever rent we pay has exemption while calculating tax. But in fact the reality is different;

Salaried Persons

It is exempt for a salaried person if house rent allowance (HRA) is provided to him as a part of compensation for the services rendered. The maximum amount of exemption that he can get is the amount paid by the employee*.

Other Individuals

Then what about other individuals, who do not receive HRA, government has made a provision under section 80GG, as per this, a non- Salaried Individual can also avail a maximum deduction of Rs 2000 every month i.e. 24,000 per annum.

How to Claim HRA?

You can claim HRA if you fulfill the following three conditions:

• You should have an HRA allowance as part of your salary package.

• You must be staying in a rented house and paying rent for it.

• Rent should exceed 10% of your salary.

What is the Maximum Available Deduction on HRA?

The actual HRA entitled to get tax exemption will be the least of the following.

• The actual amount of HRA received.

• 40% of salary. This increases to 50% if you are staying in Chennai, Delhi, Kolkata or Mumbai.

• Rent paid minus 10% of Salary (Basic + Dearness Allowance)

Calculation of Exemption Under HRA

Mr. Rahul is working with an MNC and his salary details are given below. His rental accommodation is in Mumbai.

 HRA per month Rs 14,000 Basic monthly salary Rs 30,000 Dearness Allowance Rs. 2000 Monthly rent Rs 12,000

Exemption;

Actual amount of HRA = Rs 14,000

50% of salary = 50% x (30,000 + 2000) = Rs 16,000

Actual rent paid - 10% of salary = Rs 12,000 - [10% of (30,000 + 2000)]

= 12,000 - 3,200

= Rs 8,800

Here;

 Total HRA 14,000 Exemption from Tax 8,800 Taxable HRA 5,200

Rs 8,800 being the least of the three amounts will be the exemption from HRA. The balance HRA of Rs 5,200 (14,000-Rs 8,800) is taxable. From the above given example it is clear that the HRA that does not get exempted is taxed.

Other Tax Exemptions

• Rent given to your parents

• Took a home loan and bought a home but are not residing

• Home loan for a home in a city where you are not residing

• Rent given to your parents
• You can claim tax deduction on the rent given to your parents. If you are living with your parents and pay them rent they will be the landlords. One of them should declare it in his/ her personal income tax return to prevent litigation in the future.

Took a home loan and bought a home but are not residing

If you took a home loan and have bought a home but are not residing in it because of some genuine reasons you can get the following benefits

• Tax benefit on principal repayment under Section 80C

• Tax benefit on interest payment under Section 24

• HRA benefit

Home loan for a home in a city where you are not residing

In this case also you can avail the same benefits in the previous case such as;

• Tax benefit on principal repayment under Section 80C

• Tax benefit on interest payment under Section 24

• HRA benefit

Have a complaint against any company? IndianMoney.com's complaint portal Iamcheated.com can help you resolve the issue. Just visit IamCheated.com and lodge your complaint. If you want to post a review on any company you can post it on Indianmoney.com review and complaint portal IamCheated.com.

Be Wise, Get Rich.

Related Articles

5.0 / 5 based on 1 User Reviews

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.

Latest Stories

Factors to Keep In Mind Before a Personal Loan Balance Transfer

12 December 2019, Thursday

Why You Shouldn't Cancel Life Insurance Plan?

12 December 2019, Thursday

What are Gilt Funds? Know its Features, Risk & Returns

12 December 2019, Thursday

When To Switch Home Loan?

11 December 2019, Wednesday

Investments for Tax Free Income

10 December 2019, Tuesday

SIP vs Lump Sum: Which is Better?

10 December 2019, Tuesday

Beginner's Guide to Create an Investment Portfolio

09 December 2019, Monday

How Equity Investors Make Money in a Slowdown?

Calculators

What is your Credit Score? Get FREE Credit Score in 1 Minute!

Get Start Now!
Attention!

This is to inform that Suvision Holdings Pvt Ltd ("IndianMoney.com") do not charge any fees/security deposit/advances towards outsourcing any of its activities. All stake holders are cautioned against any such fraud.