House rent allowance (HRA) is one of the important components of your salary. All employers have to provide HRA as compensation for house rental expenses. However, most of us are not aware of the fact that we can also save tax on it. The HRA amount is decided based on factors like the employee’s salary structure, actual salary and the city in which he/she is residing.
WHAT IS HRA?
House Rent Allowance (HRA) is the allowance you receive from your employer towards the rent of your house. It forms a part of the salary paid to you by your employer.
HRA depends on multiple factors, such as your salary, city of residence, company’s salary structure, and more. Generally, HRA is a fixed percentage of your basic salary. You can claim a tax exemption on your HRA under Section 10(13A) and Rule 2A of the Income Tax Act, 1961.
What is an HRA Calculator?
In most Indian cities, the cost of living has risen considerably over the last decade or so. This is partly due to an increase in disposable income besides inflation. To ensure the welfare of their employees, many organizations provide a House Rent Allowance or HRA to the ones living in a rented home. This HRA calculator will help you determine the amount you receive as an allowance.
After the recommendation of the 7th Pay Commission, the HRA slabs across India have been changed to a great extent. Cities have now been categorized into 3 distinct slabs. Slab X has the most urban cities where you clearly need an HRA exemption calculator. Slab Y covers marginally low-cost cities.
How much of my HRA is exempt from tax?
- HRA received from your employer
- Actual rent paid minus 10% of salary
- 50% of basic salary for those living in metro cities
- 40% of basic salary for those living in non-metro cities
The remainder of your HRA is added back to your taxable salary. Our calculator can easily help you figure out your HRA exemption.
For example, let’s consider the following scenario:
Raghu lives in Mumbai
He receives a HRA of Rs 1 lakh from his employer.
His basic salary per month is Rs 50,000.
Further, he has taken up an accomodation for which he pays a monthly rent of Rs 15,000.
What is the quantum of HRA exemption he can claim?
| Sl. No. | Head | Calculation | Amount |
|---|---|---|---|
| 1 | Actual HRA received from employer | 100000 | |
| 2 | Actual Rent Paid (-) 10% of salary | (15000*12) – 10% (50000*12) | 120000 |
| 3 | 50% of Basic Salary | 50% (50000*12) | 300000 |
| Least of the above | 100000 | ||
HRA RULES FOR SELF-EMPLOYED INDIVIDUALS
- Self-employed individuals cannot generally claim HRA as this provision is valid only for salaried employees
- Self-employed individuals can claim the tax deduction on HRA under Section 80GG of the Income Tax Act, 1961, if the rent paid is a business expense. However, they should not own residential property in the same location or receive HRA from an employer to claim the tax deduction
- They can claim a tax deduction of ₹ 5,000 per month or 25% of the total income, whichever is lower under Section 80GG
- Self-employed individuals must submit the rent agreement as proof to claim the tax deduction
- The tax deduction can be claimed while filing the Income Tax Return (ITR)
- Tax deductions for self-employed individuals under Section 80GG are subject to the prevailing tax laws and may change over time. It is
DOCUMENTS REQUIRED FOR HRA EXEMPTION CLAIM
- Copy of your PAN card
- Copy of the landlord’s PAN card
- Rent receipts for the concerned financial year
- Copy of the rent agreement
FAQs
How much of the HRA I earn is tax-exempt?
The following slabs apply in this instance.
50% of basic salary for big metros.
40% of basic salary for non-metro locales.
Ordinarily, the gross HRA the employer pays is non-taxable.
Can I claim HRA by paying rent to parents?
A large number of salaried individuals live in their parents’ home, not in a rented accommodation. If you are given house rent allowance and live with parents, you can still get exemption on it by showing that you pay rent to your parents. To avail this exemption, your parents must be the owners of the house and they must show the rent you give as rental income in their income tax returns.