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HRA Calculation For FY 2016 To 2017

Mr. C.S. Sudheer | Updated On Thursday, October 20,2016, 11:34 AM
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HRA Calculation For FY 2016 To 2017

 

"We live in the kind of society where, in almost all cases, hard work is rewarded."
                                                                                                                                                          -- Neil deGrasse Tyson

Yes….having a good job and working hard, is your top priority. But today, jobs are scarce. You might be forced to leave the comforts of your home, the familiarity of your town and work very hard in another city. You have become a migrant in another city. Now, you have to live in a rented home/apartment. Rented houses in metro cities, can be really expensive. Your employer knows this. He gives you HRA, or what is known as the House Rent Allowance.

The Government has taken this, one step further….You get tax benefits on the HRA, your employer gives you. In this article you will learn, how to calculate HRA for FY 2016-17. IndianMoney.com offers Free, Unbiased and on-call financial advice on Insurance, Mutual Funds, Real Estate, Loans, Bank Accounts, Tax Planning and much more. Just leave a missed call on IndianMoney.com financial education helpline 02261816111, or just post a request on IndianMoney.com website. 

What is HRA?

You get HRA from your employer, as part of your salary package. You get this amount, towards the expenses of your rented accomodation. Your employer decides how much HRA you get, based on your salary and the city/metro where you reside. You get tax exemption on your HRA, under Section 10(13A) of the income tax act.

Remember: To claim the HRA benefit, you must actually pay rent, on the house you occupy. You get the HRA benefit, only if you are a salaried employee. If you live in your own home/apartment and do not pay rent, you do not get the HRA benefit.

HRA Calculation For FY 2016-17

Let’s understand how to calculate HRA, with a simple example. Rajiv who is 25 years, was born and brought up in Bengaluru. He works in Chennai, for an IT Company and stays in a rented accommodation. Rajiv pays a rent of INR 15,000 a month.

Take a look at Rajiv’s pay slip

 

Now to the big question. Does Rajiv get a tax deduction on the entire HRA he gets in his salary package, or is there a twist in a tale?

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 Rajiv’s HRA Tax benefit:

Condition 1:

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

INR 15,000 - INR 4,000 (10% of INR 40,000) = INR 11,000.

Condition 2:

(B) Rajiv resides in Chennai which is a metro city.

50% of Rajiv’s basic salary, as he resides in a metro city.

50% of (INR 40,000) = INR 20,000.

Condition 3:

(C) Actual HRA Rajiv receives from his employer, which is INR 25,000.

  • Rajiv has to pay tax on the amount received from his employer, minus the amount which is the least among the above three conditions.
  • This is INR 25,000 (amount Rajiv receives from his employer as HRA) – INR 11,000 (amount which is the least among the above three conditions).

 

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

Yes…living in a different city, far from home and working very hard, can put a lot of strain on your body. Then there is the rent. Rented accomodation can be very costly, in a metro city. Then the feeling of homesickness. In all this, a ray of hope. HRA given by your employer and the tax benefits you get, helps make your day.

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Article Author

Mr. C.S. Sudheer

Mr C.S.Sudheer is a management graduate. He started his career with ICICI Prudential Life Insurance and later on worked with Howden India. After his brief stint in Howden India, he moved on and incorporated Suvision Holdings Pvt Ltd which is the sole promoter of IndianMoney.com. He aims to build a nation that is financially literate with investment savvy citizens.

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