Find out the maximum amount of House Rent Allowance that you can claim as a tax exemption for the assessment year 2022-2023 (April 1, 2022, to March 31, 2023)
HRA, or House Rent Allowance, is a payment made by an employer to their employee to help cover the cost of renting a home. This allowance is usually given in addition to the employee’s regular salary and is intended to offset the expenses of paying rent. The amount of HRA an employee receives may be based on their salary and where they live, and it can either be a fixed sum or a percentage of the employee’s salary.
In order to calculate one’s HRA, you can use the HRA online calculator available on the website of Vakilsearch. The experts at Vakilsearch are ready helps you with all your legal matters. All your queries are answered within no time. Thus, you can thus quickly determine your HRA exemption in a fraction of a second with the help of this calculator. There is a limit set to this exemption which is determined by the government. Just continue reading to understand the HRA exemption limit for Ay 2022-23.
HRA Exemption Limit
The House Rent Allowance (HRA) exemption limit is the maximum amount of House Rent Allowance that an individual can claim as a tax exemption. This limit, which is set by the government and may change annually, is based on the individual’s location and the amount of rent they pay. It is used to determine the amount of HRA that can be claimed as a tax exemption.
This limit is separate from the standard deduction limit, which is the maximum amount that an individual can claim as a tax deduction without itemising their deductions. There are also several other tax exemptions and deductions that individuals can claim in order to reduce their tax liability. It is important for individuals to familiarise themselves with the various tax exemptions and deductions that are available to them in order to minimise their tax liability and maximise their tax savings.
Generally, the amount of tax exemption for the HRA benefit is determined by four factors:
- The salary (which includes the basic salary and dearness allowance)
- The portion of the salary designated as the HRA
- The amount of rent paid
- The location of the rental accommodation
Eligibility for HRA Exemptions
To be eligible for HRA exemptions, the following criteria must be met:
- Your employer is required to give you a tax prediction statement at the start of the financial year which includes the HRA amount. They must also deduct the HRA from your pay. You can see this deduction in Part B of Form 16, which your employer gives you when you file your Income Tax Returns. If you did not include your HRA claim with your ITR, you have until the end of the assessment year to file a revised return. (If you are looking for reliable services to file your tax return, please visit Vaikilsearch and do it at an affordable cost)
- If you live in a metropolis, your HRA exemption cannot exceed 50% of your base income
- The exemption is determined by either the actual rent payments, the actual HRA received from your employer or 50% of your basic pay. The HRA is calculated as the actual rent payments minus 10% of your base pay
- If you have a mortgage, you can apply for HRA benefits
- If you own a home and pay rent for your parents to live there, you may be eligible to receive HRA payments. In order to be eligible, you must provide the necessary documentation. However, you cannot claim HRA while paying rent for your spouse to live in a home that you own
- If your rent payments are more than Rs. 1,00,000, you must provide the HRA claim form along with your landlord’s PAN information in order to submit your claim
- If the landlord is a Non-Resident Indian (NRI), you must subtract 30%
HRA Exemption Limit for AY 2022-23
For the assessment year 2022-23 (the period from April 1, 2022, to March 31, 2023), the HRA exemption limit is determined by the government based on the individual’s location and the amount of rent they are paying.
The Income Tax Act states that for the purpose of calculating house rent allowance (HRA), the lesser of the following three amounts will be considered:
- The actual HRA received by the employee from the employer
- 50% of the employee’s basic salary if they live in a metropolitan area (Delhi, Mumbai, Kolkata, or Chennai), or 40% if they live in a non-metropolitan area
- The rent paid by the employee minus 10% of the employee’s basic salary.
Note that basic salary is defined as the employee’s basic pay plus any dearness allowance (DA) and commission on sales at a fixed rate.
For example, let’s imagine that you earn Rs. 40,000 per month and you live in Chennai.
- Your flat rent = Rs. 20,000/month
- 50% of your salary = 50% of Rs. 40,000 = Rs. 20,000
- Actual HRA received from the company = Rs. 20,000
- The rent paid by the employee minus 10% of the employee’s basic salary = Rs. 20,000 – Rs. 4000 = Rs. 16,000
Hence, your exempted HRA per month is Rs. 16,000 and the net taxable income per month is Rs. 4000 (Rs. 20,000 – Rs. 16,000). Hence, the annual exempted HRA amounts to Rs. 1,92,000 and the annual net taxable amount is Rs. 48,000.
In order to claim the HRA exemption, an individual must submit the following:
- Proof of the rent they are paying, such as a rent receipt or a rent agreement
- Proof of their basic salary, such as a salary certificate from their employer
It is important to note that the HRA exemption limit is separate from the standard deduction limit, which is the maximum amount that an individual can claim as a tax deduction without itemising their deductions. The standard deduction limit for the assessment year 2022-2023 is ₹ 50,000 for individuals below the age of 60, ₹ 75,000 for individuals aged 60 or above but below the age of 80, and ₹ 1 lakh for individuals aged 80 or above.
In addition to the HRA exemption and standard deduction, there are several other tax exemptions and deductions that individuals can claim in order to reduce their tax liability. These include deductions for investments in certain tax-saving instruments, such as the Public Provident Fund (PPF), and deductions for certain expenses, such as medical insurance premiums and children’s tuition fees.
Looking to avoid losses in your tax, then contact a chartered accountant via Vakilsearch and get the best expert advice. Still, if you are finding it difficult to calculate your HRA exemption pertaining to Ay 2022-2023, as mentioned earlier, you can use the online calculator and do it easily.
Thus, it is important for individuals to familiarise themselves with the various tax exemptions and deductions that are available to them in order to minimise their tax liability and maximise their tax savings. It is also advisable to consult with a financial advisor or tax professional to ensure that you are taking advantage of all of the tax. Connect with Vakilsearch today for your tax exemption easily and smoothly. Our legal team is just a call away.
- Who All Can Avail of the House Rent Allowance?
- Eligibility Criteria to Claim HRA
- Documents Required for HRA Exemption