The HRA allowance received by an employee is exempted from tax. To know the tax exemption you will get on the HRA you get, you can use HRA Exemption Calculator Online to save time. Read on to know more!
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.
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.
- 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 is discussed in detail in the 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.
- 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.
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 exemption 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.
Eligibility for HRA Exemption
HRA is paid to the employee by the employer as a part of their salary. Tax benefits can be claimed on this HRA allowance as described by the Income Tax Act of 1961. Section 10 (13A) of the Income Tax Act allows the employee to enjoy tax exemption benefits on the HRA allowance according to the rules mentioned.
To claim HRA exemptions you have to be eligible for them. We have mentioned below the eligibility criteria and the conditions under which you can claim an HRA exemption.
- To claim for HRA exemption the individual must be a salaried employee.
- The accommodation of the employee must be rented.
- The employee must be receiving an HRA allowance as a part of their basic salary.
- 40% of the total basic salary is exempted from tax if the employee lives in a non-Metro city and 50% of the basic salary is exempted if they live in a metro city.
- The employee must not own a residential property in the location they currently live in.
- The spouse of the employee is also not allowed to own residential property in the place you currently live.
- If you are living with your parents you can still apply for an HRA exemption but you have to pay monthly rent to your parents and provide proper documents as proof.
- If you are paying a home loan interest you can still claim an HRA exemption.
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 exemption calculator online, you can reach out to us at Vakilsearch. The HRA calculator on Vakilsearch is easy to use and you will get to know what amount of your salary will be exempted from tax.