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What is HRA (House Rent Allowance) and How to calculate HRA?

HRA (Housing Rent Allowance) is exempted from tax under the Income Tax Act of 1961 and is used to pay for accommodation. Read on if you want to know What is calculate HRA?

HRA allowances are the money you can use to pay for your housing expenses. You can use calculate HRA allowances to pay for rent, utilities, and other household expenses. Your employer will give you HRA contributions as a part of your salary and HRA is not a part of taxable income.

As an employee, you must know what is HRA and how many tax exemptions apply to it. In this article, you will learn about HRA and the tax benefits you will get. The article also covers the process of calculation of HRA exemption. 

What is HRA?

Housing rent allowances are a form of financial assistance to help you pay your housing costs. This amount is given to the employee by the employer. Usually, the HRA allowances are 40 to 50% of your basic salary depending upon where you work and live.

Employers have to pay HRA allowances under the Income Tax Act of 1961 if the employee is eligible for them. This amount is exempted from income tax and can be used by the employee for accommodation purposes. There are several tax deductions that are applicable to HRA allowances that can be checked when filing the ITR Returns. Piece of complete information about the location of the Residence, the payment of rent, and the landlord has to be provided to get the benefits of HRA exemption.

If you’re interested in calculating the HRA exemptions you can use the HRA exemption calculator on Vakilsearch. It is an easy-to-use, online tool that will calculate the tax exemption you will get on the HRA you receive.  

Documents Required for HRA Exemption

The HRA is paid by the employer as a part of the basic salary. To get HRA exemptions you have to mention it in Form 16 while filing for income tax returns. There are several documents that are required to get HRA exemptions. We’ve mentioned below a checklist of documents required.

  • If the annual rent exceeds the amount of  ₹1,00,000,  the PAN card of the landlord is required.
  • The PAN card of the employee is required.
  • Payment proof of rent is required which can be rent receipts.
  • The rent receipts should contain the date of the payment along with the landlord’s name and the pan card details. 
  • Information about the location and the address of the residential property. 
  • At least rent receipts of the last 4 months are required to claim HRA exemption.
  • A copy of the rental agreement is required to claim HRA exemption.
  • The duration of rent is required. 
  • The name of the landlord and the tenant is required. 
  • If the applicant is living with the parents and pays rent to them they can apply for HRA exemption, however, they have to provide proof of payment of rent.

Rules for HRA Exemption

 

To get access to HRA exemptions you have to be eligible for them and there are certain rules regarding HRA exemptions. There is a list of important rules regarding HRA allowances and the tax benefits provided on them.

  • HRA exemption is provided only to Employees for companies who do not own an apartment in the location they live in.
  • The employee must be living in a rented.
  • In case the employee lives with the parents they have to provide rent receipts to get benefits of HRA exemptions.
  • If the employee or their spouse owns a house in the area they live in they are not eligible for HRA exemptions.
  • HRA exemption is offered only when the rent is directly paid to the landlord.
  • If the employee lives in a metro city 50% of their basic salaries are eligible for HRA exemption tax benefits.
  • If the employee lives in a non-Metro city 40% of the basic salary is eligible for HRA exemptions.
  • To be eligible for HRA exemptions the employee has to provide the rent receipts of at least 4 months as proof of rent payment.
  • When an employee provides housing rent allowances to the employee it is mentioned in form 16 under section 10(13A).
  • In case this section is not present the exemption can be availed under section 80G.

Calculating HRA Exemptions

The housing rent allowance given to the employee by the employer or the company is exempted from tax. Depending on where the employee lives 40 to 50% of the basic salary is exempted from tax. If you want to calculate the HRA exemptions you will get on your basic salary we have mentioned the steps below for the same.

  • Calculate the amount of HRA you receive from the employer.
  •  If you live in a metro city calculate 50% of your basic salary and if you live in a non-Metro city calculate 40% of your basic salary.
  • Calculate 10% of a basic salary and subtract it from the rent you pay each month.
  • Out of these three calculations, the one that has the minimum value is exempted from tax.

If you want help in calculating the HRA exemptions you will receive, you can use online calculators. Vakilsearch has an online HRA calculator in which you have to provide basic details such as the basic pay you receive, the allowance you receive, the city you live in, etc. After you provide this information your HRA exemptions will be calculated.

Conclusion 

Every company and employer has to provide an HRA to their employees who live in rented accommodations. There are several rules and regulations regarding these HRA allowances. The HRA that an employee receives is exempted from tax as mentioned by the Income Tax return Act of 1961. In this article, we talked about what is HRA  Rent and how you can calculate the exemptions that you will get.

If you want to calculate the tax benefits you will get on your HRA allowances you can use the HRA exemption calculator by Vakilsearch. It is an easy-to-use tool that will calculate the exemptions you will receive. Vakilsearch can also help you with multiple legal procedures. The team of Experts will guide you through legal compliances and help you solve all your queries.

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