If you are trying to use an HRA Exemption calculator but don't know where to start, we're here to help. Read on to know all about HRA exemption and its limit.
What is the Maximum Limit of HRA Exemption: House rent allowance or HRA is the sum that is paid by employers to the employee as a part of their salary. HRA is paid to help the Employees with their accommodation rent. House rent allowance is decided on the basis of many factors such as the city in which they live, the total salary and the number of employees in the company etc.
This HRA provided to the Employees by the companies and employers is exempted from tax. Tax exemption under HRA is provided only to the Employees who live in rented accommodation and to full-time employees of the company. Self-employed workers or freelancers do not get tax exemptions under HRA. You can use the online HRA Exemption Calculator India by vakilsearch to calculate the HRA exemption you’re eligible for.
Tax exemption under HRA is given to employees but it has certain rules and regulations. There is a limit of HRA exemption on which it is provided and beyond that limit the employee has to pay taxes. In this article, we will discuss HRA exemption and limit of HRA exemption. This will help you in HRA exemption calculation so that you can avoid any future inconvenience.
What Is the HRA Exemption Limit?
HRA exemption is provided to salaried employees but there is a certain amount limit of HRA exemption to which tax is exempted.
The tax exemption will be provided on the minimum amount among these:
- The HRA you receive from your employer.
- Reduce the annual rent paid by 10% of the salary
- 40% of your salary if you live in a non-metro city
- If you live in a metro city, 50% of your salary.
The amount that is least among these four will be exempted from the tax but for the rest of the amount, you have to pay the tax. If you want to get maximum tax benefits by HRA exemption, you can discuss with your employer to have your salary structured in a particular way.
You can also calculate your HRA exemption so that you have an idea about how much tax exemption you will get and what you can do to get maximum benefits. You can use the HRA Exemption Calculator provided by Vakilsearch for this purpose.
How it is Calculated?
Calculating HRA exemption can be confusing a lot of times. It is based on the salary you receive, the allowances you get, your annual rent and the city you live in. If the HRA calculation is confusing for you, Don’t worry, here’s some information which will help you.
The exemption will be provided to the lowest amount among these four,
The salary you receive, 40% of your salary if you live in a non-metro city and 50% of your salary if you live in a metro city and the amount you get after subtracting the rent from 10% of your salary.
To Calculate the you have to calculate all four of these and determine which one is minimum. That amount that is minimum will be exempted from the tax and you will be paying tax on the rest.
What Are the Benefits?
One of the major benefits of HRA exemption is tax benefits. The amount of HRA which is exempted from tax can be easily used for accommodation purposes and is a great help to salaried employees.
If you live with your parents you can still apply for HRA exemption by providing the rent receipts. This way you can help your parents financially and you will also get the tax benefits on it.
If you want to know how much tax exemption you can get from your salary, you can use the HRA exemption calculator by vakilsearch. It is an online tool and is easy to use. This tool will help you calculate your HRA exemption and you can manage your funds accordingly.
How to Claim the HRA Exemption?
If you are an employee who lives in a rented accommodation you can claim an HRA tax Exemption by following a few steps. Your employer provides you with a house rent allowance and a certain part of it is exempted from taxes.
Here are some important points to keep in mind when claiming an HRA Exemption.
- If your employee pays you an HRA as a part of your salary, that does not mean you’re eligible for HRA tax Exemption. You need to reside in rented accommodation to be eligible for HRA Exemption.
- The Entire amount paid to you as HRA is not exempted from tax. There are certain rules and regulations that apply to this tax exemption.
- Only 4 countries are considered metro cities for HRA exemption Calculation. These cities are Mumbai, Delhi, Chennai and Kolkata. All the other cities are considered non-metro cities and the HRA exemption is calculated accordingly.
- If you live with your parents, you can still claim an HRA exemption by paying rent to your parents. You need to provide the required documents such as rental receipts to be eligible.
- While you can apply for an HRA exemption while living with your parents, you are not considered eligible for HRA Exemption if you are living with your spouse.
- The landlord’s PAN card is required if the annual rent exceeds ₹1,00,000.
- Usually, only two important documents are required to claim an HRA exemption. These documents are Rental receipts and Landlord’s PAN card.
- The applicant also needs to submit a self-declaration form that mentions that they are eligible for this exemption.
Conclusion
House rent allowance and HRA exemption are important parts of an employee’s salary. It is given to the employee by the company or the employer for their house rent and it helps them with tax exemption towards the end of the year. It is important that the employees know that HR exemption has certain limits and they have to pay taxes beyond dose limit of HRA exemption.
If you want to do an HRA exemption calculation you can use the free HRA calculator by Vakilsearch which will allow you to calculate the tax exemption that you will get based on your salary, the location you are working etc.
Must Read Topics:
