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HRA (House Rent Allowance) Calculation from Basic Salary

IndianMoney.com Research Team | Posted On Wednesday, February 20,2019, 12:54 PM

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HRA (House Rent Allowance) Calculation from Basic Salary

 

 

What is HRA and How to Calculate?

HRA stands for house rent allowance. It is an important component in the monthly salary of all salaried people in India. HRA defines the total amount of money allotted by the employer towards employee’s accommodation. This is basically compensation for rent, the employee pays. The HRA of the employee is decided based on the salary and the city of residence.

If the place of residence of the employees is a metropolitan city like Mumbai or Chennai, then the employee is entitled to an HRA equal to 50% of the salary. For all others cities the entitlement is 40% of the salary. The HRA provided will be the lowest of the following three conditions:

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

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HRA Calculation- How to Calculate HRA from Basic Salary?

HRA Calculator:

A few components of your in-hand salary can be exempted from taxable income. You can enjoy these tax benefits without even investing in any of the tax saving instruments. One of these components is the House Rent Allowance.

To calculate the amount of HRA that can be exempted from tax, you must use the online HRA calculator. You can get the online HRA calculator on a number of websites. The HRA exemption calculator consists of the following fields:

  • Basic salary received
  • Dearness allowance received; DA received
  • HRA received
  • Total rent paid
  • Enter your email address.

House Rent Allowance Calculation:

A salaried person receives HRA which is included in his salary to pay the rent. HRA is beneficial to the employee as it helps save taxes. The HRA helps in reducing the taxable income, thereby saving taxes. This benefit is only applicable to people staying in rented accommodations. This benefit cannot be claimed if you reside in your own house or apartment.

SEE ALSO: Calculate you HRA

How to Calculate HRA?

TABLE-An example of Payslip:

 

Name – Priya Sharma

 

 

BASIC

40000

PF

2500

HRA

25000

Professional tax

200

CONVEYANCE

2000

 

 

SPECIAL ALLOWANCE

3000

 

 

MEDICAL

1250

 

 

LTA

5000

 

 

TOTAL SALARY

76250

 

 

 

Priya is 26 years and resides in Chennai. She works for an IT Firm and stays in a rented accommodation. She pays rent of Rs 15,000 a month.

The HRA (House Rent Allowance) given to you by your employer is subject to:

Condition 1:

The actual rent you pay – 10 % * (Basic salary)

Condition 2:

50% of (Basic Salary) in case you reside in a Metro

                                        OR

 40% of (Basic Salary) if you reside in any other city

Condition 3:

Actual HRA you receive from your employer.

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

Let’s calculate Priya’s HRA Tax benefit:

Condition 1:

(A) Priya pays a rent of Rs 15,000 a month, towards her rented apartment in Chennai. Priya’s basic salary is Rs 40,000 and 10% of her basic salary, is Rs 4,000.

This is Rs 15,000 - Rs 4,000 = Rs 11,000.

Condition 2:

(B) Priya resides in Chennai which is a metro city:

50% of Priya’s basic salary, as she resides in a metro city, which is Chennai.

50% of Rs 40,000 = Rs 20,000.

Condition 3:

(C) Actual HRA Priya receives from her employer, which is Rs 25,000.

o    Priya has to pay tax on the HRA amount received from her employer, minus the amount which is the least among the above three conditions.

This is Rs 25,000 (amount Priya receives from her employer as HRA) – Rs 11,000 (amount which is the least among the above three conditions).

Priya has to pay tax on Rs 14,000. This amount is added to Priya’s taxable salary and she is taxed, as per the tax bracket she falls under.

Rules for HRA Calculation and Claims

There are certain specific set of rules that are applied for claims related to HRA. Listed below are the rules:

  • The HRA allotted to the employee cannot exceed more than 50% of the basic salary.
  • As a salaried individual you cannot claim the entire rent paid. The exemptions are subject to the following conditions:
  1. The amount allotted by the employer as HRA.
  2. Rent paid less 10% of the basic salary.
  3. 50% of the basic salary in case the employee resides in a metro city and 40% for non-metro cities.
  • An employee can avail tax benefits of HRA along with a home loan:
  • In case you are staying with parents then you can pay rent to them and collect the rental receipt and submit the receipt for a tax exemption. However the rule is not applicable in case you are staying with your spouse.
  • In case rent exceeds Rs 1 Lakh a year, then attaching landlord’s PAN details is mandatory to claim tax exemptions.
  • If your landlord is an NRI, you must deduct 30% tax from the rental amount that must be declared.

SEE ALSO: Rules for HRA Calculation

House Rent Allowance Benefits:

One of the main benefits of House rent allowance is that it offers a way of cutting on taxes. Consequently, it leads to reduction of the income tax that you have to pay each financial year.

FAQ

What is HRA Calculator?

HRA calculator is an online tool to calculate HRA. This is beneficial for employees as it helps calculate the amount that can be exempted from taxes. However, the tax benefits can only be availed by employees staying on rent.

How HRA is Calculated for Tax Saving?

The HRA of an employee is calculated based on certain factors. However to calculate HRA for tax saving the exemptions will be based on the following provisions:

  • Amount allotted by the employer as HRA.
  • Amount of rent paid less 10% of the basic salary.
  • 50% of the basic salary in case the employee resides in a metro city and 40% for non-metro cities.

What are the Proofs Submitted for Claiming the HRA?

Employees used to submit the rental receipt to claim tax benefits on HRA. To claim HRA the employee must submit the rental receipt and the below mentioned documents:

  • Electricity bill
  • Water bill
  • Rental agreement

Can you Claim HRA and Home Loan Tax Exemption?

Yes, homeowners who have availed a home loan and receive HRA as a part of their salary, can claim both HRA exemption and home loan tax exemption. You can claim:

  • Under Section 24, a deduction on home loan interest.
  • HRA tax exemption towards rent payment.
  • Principal repayment under Section 80C of the Income Tax Act up to Rs 1.5 Lakhs.

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What if i Pay Rent but do not Receive HRA?

You can still avail tax benefits for the rent paid under Section 80GG, even if you do not receive HRA.  There are certain conditions that need to be considered:

  • You must have a regular source of income.
  • You have not received HRA for the financial year in which you make the claim.
  • You/ spouse/ minor child should not own a house/ residence in the current city you live in.

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