House Rent Allowance (HRA) is yet another type of allowance provided in your salary just like Dearness Allowance, Travel Allowance, etc. You’ll be able to check this out in your monthly salary slips.
HRA is the compensation provided to all salaried employees living in rented accommodation by their employers. This helps you to save on income tax by claiming tax benefits for the same. Keep reading to find out all about HRA and HRA Calculator.
What is meant by the House Rent Allowance (HRA)?
House Rent Allowance (HRA) is a part of your salary that is paid to compensate for your housing needs. This amount is meant to help the employee to meet their cost of rented accommodation. Besides, it also forms a key component when it comes to availing of tax benefits.
How is your HRA Figure Determined?
HRA Calculation depends on some basic factors like the location you have to reside in for your job. If you live in a metropolitan city, then you will get 50% of your basic salary as House Rent Allowance (HRA). If you live in any other city, then 40% of your basic salary can be availed of as HRA.
Also, keep in mind that for this calculation, the salary that we consider is the sum of your dearness allowance, basic salary, and certain other commissions. But, if you do not receive commissions or DA, then the HRA will be 40% or 50% of your basic salary.
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Eligibility Criteria to Claim HRA Tax Exemption
A certain part of your HRA can be claimed for tax exemption as per the Section 10(13A) of the IT Act. But, you have to meet some eligibility criteria first. The following requirements are needed for an individual to be able to file an HRA Tax Exemption:
- The person should be a salaried employee
- Should receive House Rent Allowance as part of their salary
- Should be residing in a rented house
- Should actually be paying the residing house’s rent. And that implies that the house rent receipts should be issued in their name.
HRA Calculation is done on the basis of your salary. Now, the entire amount that you receive as HRA is not tax-exempt. You can claim a tax deduction for only a portion of your House Rent Allowance. The income tax rules state that your HRA will have a tax-exempt portion which is the minimum of the following:
- Actual HRA component of your salary
- 50% of your basic salary if you live in Delhi, Chennai, Mumbai, or Kolkata. 40% of the salary if you live in some other city.
- Actual rent paid – 10% of the basic salary
For example, Mr X resides in rented accommodation in Delhi and is a salaried employee. His monthly housing rent is INR 12,000 but his employer gives him a monthly HRA of INR 15,000. Now, let us figure out the amount of tax deduction that he can avail of if his basic salary if INR 25,000:
- Actual rent – 10% of the salary = 12,000 – 2,500 = INR 9,500
- Actual HRA provided by the employer = INR 15,000
- 50% of the basic salary = INR 12,500
The minimum of the above three figures is the actual rent minus 10% of the salary. So, Mr X will receive an HRA deduction of INR 9,500 on his total income.
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Documents Required For Claiming Tax Exemption on HRA
The main document to be provided for availing of HRA tax exemption is your housing rent receipts and rent agreement. Keep in mind that you can also avail of the tax exemption if you pay rent to your parents. And you need to submit rent receipts in this case as well, to receive to avail of the HRA tax exemption.
You might need to provide the PAN details of the landlord or landlady if the annual rent goes over the mark of INR 1 lakh. In case the landlord or landlady doesn’t have a PAN card, then they need to give a self-declaration stating the same.
How to Calculate HRA Tax Deduction using an HRA Exemption Calculator?
Certain salary components like the House Rent Allowance are tax exempt. You don’t have to invest that amount in any tax-saving securities. Now, in order to calculate the exact amount of your HRA that can be exempted from tax, you can use an HRA calculator. For this, you can follow the given steps:
- Enter the basic salary you receive and your HRA as mentioned in your salary slip.
- Type in the actual rent paid
- Choose whether you live in a metro city or not.
Now, the HRA Calculator will show you the HRA Exemption you can avail of.
HRA Exemption as per the New Tax Regime
As per the new Income Tax regime announced in the Union Budget of 2020-21, certain deductions and exemptions like HRA, TA, etc. cannot be availed of anymore. The new tax regime has brought forward several changes but the good point is that it is optional.
So, if you opt for the new tax regime, then you won’t be enjoying the HRA deductions. But, you can still avail of the HRA tax exemption if you stick to the old tax regime.
Points to Keep in Mind While Claiming HRA Deduction
- If you are residing with your parents in rented accommodation and the HRA rent receipts are in their names, then also you can avail of HRA deduction. But, your parents still need to add the same amount of rent to their earnings while filing their IT returns.
- HRA is supposed to provide compensation for your house rent. So, you cannot avail of the HRA if you are residing in a self-owned house.
- The House Rent Allowance (HRA) is variable as per the location you are residing in for your job. For metro cities like Mumbai, Delhi, Chennai, and Kolkata, you can get an HRA tax exemption of 50% of the HRA that you receive. But, if you reside somewhere else, then you can claim only 40% of your HRA for a tax deduction.
- If your annual rent is more than INR 1 lakh, then you need to furnish your landlord’s PAN to get HRA tax exemption. And in case, your landlord doesn’t have a PAN, then a signed declaration stating the same should suffice. But, if none of these can be provided, then you’ll lose out on your tax exemption.
- If you are paying house rent to your spouse, then you cannot claim HRA deduction for it.
Benefits of Using House Rent Allowance (HRA)
There are several advantages of using an HRA Calculator:
- The HRA Calculator never makes any errors regardless of how many times you use.
- You get an accurate idea of the amount of HRA tax exemption that you can claim as per your HRA slab.
- You can easily plan your yearly income taxes based on the HRA tax-exempt result given by the HRA tax benefit calculator.
Q1. Can I claim for HRA tax deduction if I have my own residence?
Ans. If you own a house but do not reside there and instead, you live in a rented allotment. Then, you can claim for HRA exemption. For example, if the employee has a house in Kolkata but lives in a rented apartment in Bangalore, then they can avail of the HRA tax deduction.
Q2. Can I claim HRA if I live with my parents?
Ans. Yes, you can. If you live in your parents’ house and pay rent to them, then you can avail of the HRA to pay that rent. Also, you need to furnish the rent receipts that you are paying your parents. Otherwise, you won’t be able to avail of the HRA.
Q3. Do I need to produce the proof of rents paid while claiming for HRA deduction?
Ans. Yes, you need to furnish the proof of rent provided throughout the year to file your claim for HRA exemption. So, you must keep the rent receipts. And if you don’t have the rent receipts, then you need to file a lease agreement with the bank. Then, you’ll have to furnish a bank statement that proves the same.
Q4. Can I claim for HRA tax deduction if my landlord is an NRI?
Ans. Yes, you can file for HRA tax deduction even if your landlord is an NRI. But, TDS of 30% is applicable on the same.
Q5. Can I claim for both HRA and home loan interest tax deductions at the same time?
Ans. Yes, you can. As per the recent amendment in the Income Tax Act, you can now make simultaneous tax deduction claims.