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HRA Calculation

Check HRA Full Form & HRA calculation to avail maximum tax benefits with the right knowledge.

#Income-Tax
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HRA Meaning

HRA full form is House Rent Allowance. It is a part of your salary provided by the employer for the expenses incurred towards rented accommodation. You can claim HRA exemption only if you are residing in a rented house. HRA exemption is covered under Section 10(13A) along with rule 2A of the Income Tax Act, 1961. Let’s check the HRA rules and HRA calculation below.

HRA Calculation with Example

The salary of both public and private sector employees is composed of several parts and allocated towards different expenses. HRA is one such component. The HRA may be fixed or derived through an exclusive agreement between you and your employer.  

The HRA exemption of tax is covered under Income Tax Act Section 10-13A and provides for the HRA deduction based on the amount lowest amongst these: 

  • The actual amount of HRA given by the employer
  • 50% of your salary is eligible for the HRA exemption if you live in a Metro city of India
  • 40% of your salary is HRA exempted if you live in a non-metro city 
  • Actual rent paid each month, minus 10 % of your salary (salary here means the basic salary, including the commissions and dearness allowance) 


Also Read: Income Tax Slab: Rates & Deductions

Let’s take one example to understand HRA calculation:

Mr. Chauhan, employed in Delhi, lives in a rented accommodation for which he is paying a monthly rent of Rs.12,000 during the fiscal year 2018-19 (the assessment year 2019-20). He receives a basic salary of Rs.40,000 with an HRA of Rs.18,000 PM from his employer. The HRA deduction from income tax will be as follows-

Particulars

HRA Calculation (Rs.)

Amount per annum (Rs.)

Actual HRA

18000*12

2,16,000

Actual Rent -10% of Basic Salary

12,000*12 – 10% (40,000*12)

96,000

50% of Basic Salary

50% (40,000*12)

2,40,000

Out of these, Mr. Chauhan will be able to claim a HRA exemption of Rs.96,000, as it the lowest among the amounts mentioned above. You can also use HRA exemption calculator online to help you with HRA calculation.

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HRA Rules for Self-Employed Individuals

In case you are a self-employed individual, then you, too, can claim HRA deduction and tax exemptions under Section 80GG of the Income Tax Act. This section also applies to those of you who are salaried individuals when you do not receive HRA. 

HRA rules under Section 80 GG are as follows:

  • The house rent allowance or HRA exemption is available only to the HUF and the individuals under the Act 
  • Self-employed individuals and salaried people can claim rent deductions only if they do not receive tax exemption under the provisions of Section 10-13A
  • The employee, HUF (Hindu Undivided Family) in which the employee is one of the members, the spouse or the minor child shall not enjoy ownership of any accommodation, where the concerned person is residing or working
  • Those who wish to receive HRA exemption under Section 80 GG should not claim tax benefits related to any other self-occupied property they own elsewhere
  • Under Section 80 GG, those who want to claim HRA deduction should furnish a self-declaration, using the form 10-BA. In this form, the individual will be required to show that he/she duly satisfies all the other abovementioned conditions

HRA Exemption

HRA Exemption When Employer Refuses to Provide Deduction Benefits

Even if your employer refuses to provide HRA related tax benefits, you can claim the same at the time of filing income tax returns. As per the HRA rules, you will receive the exempted amount as the refund of the excess TDS.

HRA Exemption When More Than 1 Family Member Pays Rent

In case more than one member of the house is earning, such as you and your spouse, and both are paying the house rent, then the two of you can claim the HRA related tax rebate by furnishing separate rent payment receipts. However, if there is a single rent paid, then any one of you can only claim the HRA exemption in such a case.

Hra calculation

Hra calculation

Documents Required to Claim the HRA Exemption

You will have to provide the following documents at the time of claiming HRA deduction:

1. If the rent you paid during a given financial year exceeds Rs.1 Lakh, you will have to provide the PAN card [1] details along with a copy of PAN of the landlord/property owner

2. The rent receipts, which should include the following 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 

HRA Tax Exemption Max Life Insurance

2. The rent receipts, which should include the following 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
HRA Tax Exemption Max Life Insurance

The same receipt can be used for 3 months. Hence, for a year, you need at least the last 4 receipts while claiming HRA benefits.

The Xerox/ photocopy of the rent-agreement, if required.

The employee can also pay the house rent to his or her father and claim the tax exemptions related to the House Rent Allowance (HRA).

Conditions for Claiming HRA Exemption

  • Under Section 80 or any other section, the HRA exemption is only provided when you pay the rent to a landlord
  • There is no HRA deduction for the periods when the rent is not paid 
  • When your job location changes (i.e. when you shift from a non-metro to a metro city or vice versa), or there is a change in your salary, the HRA deduction is calculated monthly. Hence, the HRA exemption or deductions may vary for the periods of change separately
  • Apart from your father, if you pay rent to any other family member, HRA and related tax exemptions will be provided by the employer. To claim the HRA deductions, you should pay rent on a regular monthly basis and that too through the bank transfers to help the IT department easily deduce your expenditure

When the House Rent Amount Exceeds Rs.1 lakh

In case you pay house rent that exceeds Rs.1 lakh, then, in that case, you can claim HRA exemption towards the same. You will be required to furnish your PAN details of the property owner, along with the various rent receipts while claiming for HRA benefits.

Ways to Save Tax Other Than HRA

HRA is only one of the ways to reduce your tax liability. In addition to HRA exemption and deduction benefits, the Income Tax Act 1961, has several sections that pertain to tax saving. These sections list down various tax saving investments and other provisions through which you can claim deductions and exemptions on your income in every financial year. 

One of the most significant Sections is 80C that provides tax benefits up to the limit of Rs.1.5 lakh. It covers a range of insurance and investment instruments that can offer you not just tax-saving benefits but also help you in meeting other essential individual and family goals. 

Insurance products provide your family with a safety cushion in case of an unfortunate happening that leaves them without a breadwinner. It provides financial support in the form of a death benefit that you may take as a lump sum or add the option of receiving monthly income along with it. 

Also, the premium that you pay on the plan allows you to claim deduction up to the limit of Rs.1.5 lakh. Max Life Insurance Smart Term Plan (UIN: 104N113V03; Non Linked Non Participating Individual Pure Risk Premium Life Insurance Plan) offers your family comprehensive financial protection by providing them for situations involving critical illnesses, disability and death of the policyholder. It also provides you with the benefit to avail of the return of premium option. You may even use our online term plan calculator to ascertain how much coverage would be adequate for you. 

You may also consider an instrument such as ULIP (Unit Linked Insurance Plan) that offers you twin benefits of insurance and investment. Other tax saving investment options include the Public Provident Fund (PPF), National Pension Scheme and National Savings Certificate.  

Also Read: Benefits of ULIPs

Also, the premium that you pay on the plan allows you to claim deduction up to the limit of Rs.1.5 lakh. Max Life Insurance Smart Term Plan (UIN: 104N113V03; Non Linked Non Participating Individual Pure Risk Premium Life Insurance Plan) offers your family comprehensive financial protection by providing them for situations involving critical illnesses, disability and death of the policyholder. It also provides you with the benefit to avail of the return of premium option. You may even use our online term plan calculator to ascertain how much coverage would be adequate for you. 

You may also consider an instrument such as ULIP (Unit Linked Insurance Plan) that offers you twin benefits of insurance and investment. Other tax saving investment options include the Public Provident Fund (PPF), National Pension Scheme and National Savings Certificate.  

Also Read: Benefits of ULIPs

Hra formula

Hra formula

Enjoy HRA and Other Tax Saving Benefits

Now that you know what HRA is and how it works for both salaried and self-employed individuals, it is vital that you make the best use of it for tax-saving purposes. Also, plan your exemptions and deductions through HRA and other tax saving investments well in advance of the assessment period.  

It will ensure that you can get the maximum tax benefits in the best way possible. Especially those of you who live in Tier 1 or 2 cities, meeting with rental costs and saving money is one of the toughest things to do. Having proper knowledge of HRA benefits and other tax saving investment benefits will be of great support to you in the process of saving your hard-earned money from slipping away.

Sources:

[1]: https://www.incometaxindia.gov.in/Pages/tax-services/apply-for-pan.aspx

Disclaimer:

Save 46800 on taxes if the insurance premium amount is Rs.1.5 lakh per annum and you are:

  • Regular Individual
  • Fall under 30% income tax slab having taxable income less than Rs. 50 lakh
  • Opt for Old tax regime

ARN:- Sep/Bg/04F

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