This content explains HRA exemption calculation and eligibility factors, using an HRA exemption calculator, rules for self-employed individuals, necessary documents, and formula with an example. It also discusses online HRA calculator usage, eligibility criteria, and required documents for claiming HRA exemption.
HRA exemption is a provision in the Income Tax Act, 1961 (Act No. 1 of 1961) which exempts income tax from certain amounts of money received by an employee as salary or wages for services rendered to his employer. The HRA exemption is applicable only to those employees who are not covered under any other Exemption or Benefit which can be calculated using an HRA Exemption Calculator.
The tax exemption you receive on your housing rent allowance will highly depend on the basic salary you receive, the rent you pay, the city you are living in, and other investments that you hold. If you want to know about HRA exemption calculation the article is for you. In this article, we will talk all about HRA and its tax exemptions. You will also learn how to use the HRA exemption calculator online.
What is HRA?
HRA or Housing Rent Allowance is given by the employer or the company to the employee. This allowance is meant to cover the expenses of the employees’ accommodation. An employee who is living in a rented apartment or house is eligible for an HRA allowance. This housing right allowance provided by the employer to the employee is exempted from Tax under the Income Tax Act of 1961.
There are several rules and regulations related to it and these can be calculated using an HRA Exemption Calculator.
- If the employee lives in a non-metro city, 40% of the basic salary is given to them as the HRA allowance.
- If the employee lives in metro cities, 50% of the basic salary is exempted from taxes under HRA exemption rules.
- PAN Card details of the landlord are required in case the yearly rent crosses the limit of ₹1 lakh.
- Rent receipts are to be submitted in order to avail of the HRA allowance amount.
These are some basic rules regarding HRA allowance and exemptions. The eligibility of an employee to get an HRA allowance and the procedure to use an HRA Exemption Calculator is discussed in detail in this article.
How to Calculate HRA Exemption?
The total annual salary of an employee includes many types of allowances that are added to the basic salary. Housing and allowance are one such allowance. It is given to the Employees so that they can cover the cost of living in rented accommodation.
The amount that is given as an HRA allowance with the salary is exempted from Tax under the Income Tax Act of 1961. If you are eligible for the HRA allowance and are getting this allowance a part of your salary will be exempted from tax.
Follow the steps below to calculate how much of the amount will be included in the HRA exemption using an HRA Exemption Calculator.
- Calculate the HRA amount given to you by the employer.
- If you live in a metro city 50% of your basic salary is eligible for HRA exemption and if you live in a non-Metro city 40% of your salary is eligible for HRA exemption.
- Calculate your basic salary along with all the commissions, allowances, and bonuses.
- Then calculate 10% of it and subtracted it from the rent you pay each month.
Out of these three calculations, the one that has the lowest value is eligible for HRA exemption. You can provide the information while filing your income tax returns and you will get an exemption on tax on that amount.
HRA Exemption Calculation Formula
As per Income Tax Rule 2A, the exemption for HRA is determined. This means that the minimum of the following amounts is exempt from an employee’s salary under Section 10(13A) and is considered as a non-taxable portion of their income:
- Employees receive actual HRA from their employer.
- HRA for metro city employees is 50% of basic salary + DA, while for non-metro city employees, it’s 40%.
- Actual rent applicable is calculated as the rent paid minus 10% of basic salary + DA.
- The HRA exemption is based on the least amount from these provisions.
To better understand the calculation of HRA, let’s consider an example,
Avinash lives in Mumbai and pays monthly rent of ₹ 30,000. His monthly HRA is ₹ 18,000, and his basic salary is ₹ 42,000 per month.
Now, we can calculate the various HRA provisions in his case.
The actual HRA received by Avinash is ₹ 216,000 per year. The amount of rent applicable after deducting 10% of basic salary is ₹ 309,600 per year. As Avinash stays in a metro city, 50% of his basic salary amounts to ₹ 252,000 per year. The least of these sums is considered for HRA, which is ₹ 216,000 per year. Therefore, Avinash has to pay ₹ 18,000 as HRA each month.
To calculate the HRA exemption for a year, Avinash’s exemption would be ₹ 2.16 lakhs. This amount would be deducted from his total taxable income at the end of the financial year. If you want to avoid the tedious process of manual HRA calculation, you can use an HRA exemption calculator available online. These tools provide accurate results, making the process simpler.
Benefits of Using an HRA Exemption Calculator
Here are some reasons why you should consider using online HRA calculators instead of avoiding them:
- Calculations are done quickly and efficiently, which is not the case with manual calculations.
- The chances of errors while calculating HRA benefits are eliminated as the calculators are accurate.
- All the variables required for HRA calculation, such as basic salary and city of residence, are considered by the calculator.
- Ultimately, an HRA calculator simplifies the process of determining your HRA exemptions for a given year, making it easier for you to file your year-end taxes.
Eligibility Factors to Avail HRA Exemptions
Here are some factors that determine whether a salaried employee is eligible to claim HRA exemptions while filing taxes:
- You must be a salaried employee.
- Your employer must include an HRA component in your monthly payments.
- You have to pay rent to qualify for House Rent Allowance tax benefits.
- You should not own any residential property.
- You should not receive rent from any property that you may own.
- Self-employed individuals cannot claim this tax benefit.
Homeowners are eligible for HRA exemptions and corresponding tax benefits on home loan interest and principal payments under two conditions.
If you own a property that is rented out, but you do not receive the rent yourself (perhaps a family member receives it on your behalf), you may still be eligible for HRA.
You can also claim HRA benefits as a property owner if you live in a city other than the one where your property is located.
Documents Required to Claim the HRA Exemption
To claim HRA deduction, you need to provide certain documents as follows.
- If your rent exceeds ₹ 1 Lakh in a financial year, you must provide PAN card details of the landlord/property owner along with a copy of their PAN.
- Rent receipts are also required, which should include specific details.
- Date
- Landlord’s name
- Tenant’s name
- PAN card details of the landlord
- Address of rented accommodation
- Stay duration
- A Revenue Stamp, along with the signature of the landlord
- You can use a single receipt for three months, so when claiming HRA benefits for a year, you’ll need the last four receipts at least.
- If necessary, provide a photocopy of the rent agreement.
- An employee can also pay rent to their father and still claim HRA tax exemptions.
HRA Rules for Self-Employed Individuals
- Self-employed individuals can claim HRA deduction and tax exemptions under Section 80GG of the Income Tax Act.
- Section 80GG also applies to salaried individuals who do not receive HRA.
- HRA rules under Section 80GG are as follows:
- HRA exemption is only available to individuals and HUF (Hindu Undivided Family) under the Act.
- Self-employed individuals and salaried individuals without tax exemption under Section 10-13A can claim rent deductions.
- The employee, HUF, spouse, or minor child cannot own the accommodation where they reside or work.
- Those claiming HRA exemption under Section 80GG cannot claim tax benefits for any self-occupied property they own elsewhere.
- A self-declaration using Form 10-BA is required to claim HRA deduction under Section 80GG and show compliance with the other conditions mentioned above.
Using HRA Exemption Calculator
If you want to know more about the HRA exemption benefits you will get, you can use an online HRA calculator. Vakilsearch has an HRA exemption calculator which will help you calculate the tax exemption benefits on the housing rent allowance you receive from your employer.
Here are the basic steps that you can follow to use online HRA calculators. They will be easy to use and you will get your work done in much less time than you will spend on calculating the exemptions yourself.
- Visit the online HRA exemption calculator.
- Fill in the details that are asked such as your basic salary, your housing rent, and your location of work. After filling in all the information, recheck it so that you can prevent any type of error.
- Press the calculate button and within a few seconds, you will get your HRA exemption calculation done.
How to Use an HRA Calculator Online?
Finding a reliable HRA exemption calculator is easy, which saves you from the hassle and time required for manually calculating your HRA deduction.
Once you find such a tool, simply follow the steps mentioned below to determine your yearly HRA benefits.
- Go to the calculator page.
- Enter your basic salary amount, dearness allowance earnings, HRA amount, and total rent in the appropriate fields.
- Select whether you live in a metropolitan city or a non-metro city.
- Double-check all the information you entered to avoid any mistakes.
- Click on the ‘calculate’ button.
By following these five steps, you can determine the amount of tax exemption you can claim during your tax return filing at the end of the financial year.
Things to Keep in Mind When Calculating House Rent Allowance Exemption
When calculating HRA deductions, remember the following guidelines:
- Allocated HRA cannot exceed 50% of your basic salary.
- Salaried employees cannot claim a deduction for the full rental amount and should select the least amount from the three provisions as a suitable exemption.
- HRA tax benefits are available alongside home loan tax rebates.
- If annual rent is over ₹ 1 lakh, provide your landlord’s PAN card to claim HRA benefits.
- If you pay rent to your parents while living with them, you can claim HRA benefits, but not if you pay rent to your spouse or partner.
- If your landlord is an NRI, deduct 30% tax from the rent amount before presenting it for HRA deductions.
- If you find these calculations difficult, use an HRA calculator to determine your yearly income tax savings under this provision.
Special Cases to Claim HRA Benefit
- If you pay rent to your parents while living with them, you can claim tax-exemption on HRA.
- To avoid rejection of your claim by the tax department, experts recommend having documentary evidence such as rent receipts, financial transactions, and rental agreement.
- The Income Tax department has rejected claims in the past due to a lack of genuine proof of transactions.
Own a House But Staying in a Different City
You can claim HRA benefit even if you own a house but live in a different city due to your job, as long as you are living in a rented property.
When can you not claim HRA exemption
If you receive HRA but live in your own apartment, you cannot claim the HRA exemption benefit, and the entire HRA amount received will be taxable in your hands.
When the House Rent Amount Exceeds ₹ 1 lakh
If your annual house rent exceeds ₹ 1 lakh, you can claim HRA exemption for it by providing the PAN details of the property owner and rent receipts when claiming HRA benefits.
Ways to Save Tax Other Than HRA
HRA is just one way to decrease your tax liability. Aside from HRA’s exemptions and deduction benefits, the Income Tax Act of 1961 has multiple sections dedicated to tax-saving. These sections enumerate various tax-saving investments and other provisions that allow you to claim deductions and exemptions on your income every fiscal year.
One of the most noteworthy sections is 80C, which offers tax benefits up to a limit of ₹ 1.5 lakh. It covers a range of insurance and investment instruments that not only offer tax-saving benefits but also help you achieve other essential personal and familial goals.
Insurance products can provide your family with a safety net in the event of an unfortunate incident that leaves them without a breadwinner. It provides financial assistance in the form of a death benefit that can be received either as a lump sum or as monthly income.
In addition, the premium paid for the plan enables you to claim a deduction of up to ₹ 1.5 lakh. Max Life Insurance Smart Term Plan (UIN: 104N113V04; Non-Linked Non-Participating Individual Pure Risk Premium Life Insurance Plan) provides your family with comprehensive financial protection in the event of critical illnesses, disability, and the policyholder’s death. It also offers you the option of a return of premium benefit. You can use our online term plan calculator to determine the appropriate coverage amount for your needs.
Another option to consider is a Unit Linked Insurance Plan (ULIP), which provides both insurance and investment benefits. Other tax-saving investment choices include the Public Provident Fund (PPF), National Pension Scheme, and National Savings Certificate.
HRA Exemptions
HRA Exemption When Employer Refuses to Provide Deduction Benefits
In the event that your employer does not offer HRA-related tax benefits, you can still claim them when filing your income tax returns. Following the HRA regulations, any amount that is exempted will be refunded to you as excess TDS.
HRA Exemption When More Than 1 Family Member Pays Rent
If multiple members of a household, such as a couple, are both paying rent, they can claim HRA-related tax rebates separately by providing individual rent payment receipts. However, if only one rent payment is made, then only one of them can claim the HRA exemption in such a scenario.
FAQs
Can I claim HRA by paying rent to parents?
Many salaried individuals reside in their parents' home rather than renting a place. If you receive a house rent allowance but live with your parents, you can still claim an exemption by demonstrating that you pay rent to them. To qualify for this exemption, your parents must be the owners of the home, and they must declare the rent you pay as rental income in their income tax returns.
What should I do if I forgot to submit the rent receipts to my employer?
The positive aspect is that you can claim HRA directly on your income tax returns. If you failed to provide rent receipts to your company's HR department during the proof submission, you can still claim HRA when you file your income tax returns. To do so, adjust your taxable income to incorporate HRA and calculate the tax payable on the reduced taxable income. If excess tax has been deducted, you can request a refund.
What should I do if my landlord doesn't give me his PAN?
If you pay an annual rent of over ₹ 1 lakh and wish to claim HRA exemption, providing your landlord's PAN is necessary. There are no alternatives to this requirement.
Can I claim HRA if I'm also claiming home loan deductions?
Indeed, you can. Even if you are a homeowner who is repaying a home loan, you can still claim HRA if you reside in a rented property. It is permissible to receive both benefits to reduce your taxable income.
Can I get a tax rebate if I am staying in my own house?
In this scenario, it is not possible to claim HRA exemption.
I have a house in Delhi, but am staying on rent in Bhopal?
It is possible to claim HRA.
My house is under construction & I have taken another accommodation on rent in the same city?
Yes, you can claim HRA.
Can I get both an HRA tax exemption and a tax rebate on my home loan?
It is permissible to claim HRA if you have rented a property for your own residence, despite having your own home for which you are repaying a home loan via EMIs. However, you must provide evidence that your house, which you are paying for through a home loan, is situated far from your workplace.
Can I claim HRA tax exemption when my landlord is an NRI?
You can but 30% TDS is applicable.
Which documents prove I have paid my rent?
You can use rent receipts from the previous financial year as proof of rent payment. If you do not have any receipts, you will need to provide financial statements to show that you have indeed paid rent.
Is DA taken into account when calculating HRA?
Yes, it is possible. However, you can use our HRA calculator to do it for you.
Can I claim HRA benefits of multiple properties?
You can rent more than one property if you want to, but you can only avail HRA benefits on one of them. Therefore, having multiple rented properties doesn't lead to additional tax savings.
Do I need additional documents to claim HRA if monthly rent exceeds ₹ 8334 (1 Lac per annum)?
If your monthly rent exceeds ₹ 8334 (or ₹ 1 lakh per year), you must provide your landlord's PAN card details along with rent receipts to claim HRA exemptions. In case your landlord does not have a PAN card, you must provide a written consent from them stating the same.
When can I claim HRA without rent receipts?
If your monthly house rent is equal to or less than ₹ 3000, you can claim HRA without rent receipts. However, if the rent exceeds this amount, submitting rent receipts is compulsory if you want to use HRA to lower your tax liability.
Do HRA exemptions include maintenance charges on a rented property?
Expenses incurred on maintenance and electricity while living on rent cannot be considered as income for the property owner. As a result, claiming tax benefits on such expenses is not possible.
Can I avail HRA when staying in parent’s house?
You can claim HRA exemptions even if you live with your parents in their property, but you must be paying them monthly rent to qualify for the rebate. When filing your taxes at the end of the year, you must provide rent receipts as you would for any other rental property.
Conclusion
HRA exemption is a deduction from the salary that an employee can claim as tax-free. HRA exemption applies to all employers, whether they are government or private companies. The maximum allowed amount of HRA per month depends on the total income of the employer and also on the number of employees in his/her organization.
It is important to know what amount of tax exemption you will receive on your HRA allowances. To use the HRA calculator online, you can reach out to us at Vakilsearch. The HRA Exemption Calculator on Vakilsearch is easy to use and you will get to know what amount of your salary will be exempted from tax.
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