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HRA Calculators – A simple guide to know about it .

House Rent Allowance is commonly known as HRA. The House Rent Allowance or HRA is a payment made by a company to a worker in exchange for the employee covering the expense of the residence. A necessary thing to always remember is that you cannot claim House Rent Allowance on your own residence.

All You Need to Know About HRA Calculators

If you are an individual who earns a salary, you can use the House Rent Allowance (HRA) to cover the costs associated with renting a home. This exemption can be used by salaried people who rent a residence to reduce their taxes. The House Rent Allowance (HRA) is a payment provided by an employer to an employee in exchange for the worker’s compensation for housing costs. It is included in the wage that the employer gives to the employee. Many people find it challenging to understand all the necessary details about HRA calculations, which is why, in this article, we have provided everything you need to know about HRA calculations. Let us first learn what HRA means.

What does HRA mean?

HRA stands for House Rent Allowance. The employer pays its employees House Rent Allowance (HRA), a part of income falling under the salary heading, to cover the cost of rented housing. The HRA is free from taxation under Section 10 of the Income Tax Act of 1961, and either a partial or complete exemption may be requested. The most recent HRA calculator can be used to determine if an HRA is taxed and whether it is exempt. It is based on a person’s salary. The calculation is affected by additional variables such as dearness allowance, the commission received, and city of residency (metro or non-metro). 

Note:

If the employee’s area of residence is a metro city, they may be excluded from paying taxes on up to 50% of their wage. In all other cities, the entitlement is up to 40% of the earnings.

What is an HRA calculator?

Numerous websites and services are available online that can calculate your HRA tax exemption for you. There are many online calculators in India that can make it simple and quick to calculate this tax deductible item. Online HRA calculators will request information about your pay before calculating your HRA. By doing this, you can keep the HRA formula accurate.

What is the New Tax Regime for HRA?

A new tax structure for India’s tax-paying citizens was recently unveiled by Finance Minister Nirmala Sitharaman. 

Compared to the previous regime, the new rule has seen numerous changes. However, one of the most significant differences that we need to focus on is that the new HRA system will not include a number of the previous tax regime’s exclusions and deductions.  These also include the HRA or House Rent Allowance. As a result, if you choose the new tax system and submit your taxes properly, you will not be able to take full advantage of the HRA deduction. 

What are the rules for HRA tax exemption in India?

As mentioned before, HRA calculation is based on a lot of different factors. However, the following three conditions have the lowest amount of HRA tax exemption that you are able to claim:

  1. The amount of HRA your company has given you.
  2. 40% of the basic pay for those who reside in non-metropolitan areas  
  3. 50% of the basic salary for those residing in a metro city.
  4. The exact rent you pay for residence minus 10% of your basic salary pay slip format

Note 

The “basic salary” includes a dearness allowance and any other commission that you earned along with your regular earnings. 

What is the formula to calculate HRA exemption?

Let us easily understand the formula to calculate HRA exemption with the help of an example.

For example, let’s say Mr A makes ₹ 50,000 per month in basic salary, receives an HRA of ₹ 25,000, and pays ₹ 12,000 in rent for a place to live in a metro city.

To receive HRA benefits, he must pay the least amount (per year) of the following, with the remainder being taxable:

  1. HRA received in total is ₹ (25,000 x 12) = ₹ 3,00,000
  2. 50% of a wage in a metro area is equal to ₹ [(50,000 x 12) x 50%] = ₹ 3,00,000
  3. Rent surplus over 10% of pay is equal to ₹ (12,000 x 12) – 10% of salary [(₹ 50,000 x 12)]

= ₹. 84,000

The Exempted House Rent Allowance is equal to the amount that is least among the above mentioned values, which is ₹ 84,000.

How can you claim HRA benefits?

  1. You can claim the income tax HRA exemption without an excess tax deduction at the source by giving your employer a copy of the rental agreement or rent receipts.
  2. Additionally, you will need to provide the landlord’s PAN information if the annual rent amount exceeds 1,00,000.
  3. You can still take advantage of the HRA deduction while submitting your IT returns, even if you do not disclose this information to your employer. However, you will need to back up or prove your claim if the tax department requires you to do so.

Conclusion

Now that you understand what HRA is and how it functions for salaried workers, it is essential that you utilise it to your advantage for tax savings. Moreover, you should also arrange your HRA exemptions and deductions well in advance of the period of assessment.

It will make sure that you may maximise your tax advantages in the most effective manner. One of the hardest things to accomplish is to manage rental prices and save money, especially for people who reside in metro cities. You will be greatly helped in the technique of preventing the loss of your hard-earned money by having a thorough understanding of HRA, its benefits and how it enables you to save tax. For more details contact our experts in Vakilsearch.

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