House Rent Allowance (HRA) Calculation – How to Calculate HRA? A Complete Guide 2024

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HRA, or House Rent Allowance, is a part/component of salary in India for most salaried employees. It helps people save taxes, especially those living in rented accommodations. If you are unaware of the key features of the HRA tax calculations and deduction or how you can benefit from them, you must read the post to know them all.

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What does HRA Imply?

HRA is the short form of House Rent Allowance. In India, HRA forms a primary component of your salary slip that helps you save on taxes. HRA is the sum that an employer pays to an employee to help them pay for the incurred cost of a rented house to support the rising cost of living. Further, HRA helps an employee save on overall taxes.

Eligibility Criteria to claim HRA – Who is Eligible to Claim Tax Deduction Under HRA

Section 10(13A) of the Income Tax Act allows an individual to claim a part of HRA as a tax deduction. However, this requires the employee to meet the below criteria of eligibility:

  • The claimant should be a salaried employee of an organization
  • They should have the HRA component as part of their salary
  • They should be living in a rented accommodation
  • They should be able to furnish rent receipts issued in their names

How is House Rent Allowance (HRA) Calculated?

The entire amount of HRA as per your salary may not be eligible for tax exemption completely. An individual can claim HRA tax benefits as the minimum of the below three amounts: 

  • The actual rent amount paid by the employee minus 10% of their basic salary, or
  • The actual amount of HRA provided by the employer, or
  • 50% of your basic salary if you are residing in a metro city, and
  • 40% of your basic salary if the employee is a resident of a non-metro city

Here, you may note that salary includes basic salary, dearness allowance (DA), and any other commissions as applicable for HRA calculation.

Let’s take an example to understand the HRA calculations for Income Tax better. Sahil lives in Kolkata and is a salaried employee in an organization. He lives in a rented accommodation and pays INR 10,000 as monthly rent for his house. The HRA he receives every month is INR 12,000, and his basic salary is INR 25,000. Now, let us see the tax deductions that Sahil can claim as per this allowance and the above criteria for claiming HRA in the table below:

Salary component 

Amount (INR)

Basic salary 

25,000

HRA

12,000
Conveyance

3000

Medical Allowance 

2500

Special Allowance

2050
Total 

44, 550

Now, we already know that the HRA tax deduction as per the HRA calculation formula that can be claimed should be the least of the below amounts:

  1. (Actual rent paid) – (10% of the basic salary) = INR 10,000 – (10% of INR 25,000) = INR 7,500; or
  2. Actual HRA allowance offered by the employer = INR 12,000; or
  3. 50% of the basic salary = 50% of INR 25,000 = Rs. 12,500.

As per the above calculations, the calculation made in the first category is the least amount to be deducted. That is the actual rent paid minus 10% of the basic salary. Hence, Sahil will receive an HRA exemption of INR 7,500 on his taxable income.

What are the Key Points to Remember to Claim HRA Deductions?

Here are a few important things to remember if you want to claim HRA deductions:

  • If the annual rent you pay is above INR 1 Lakh, you would require your landlord’s PAN card details to claim HRA deductions. If your landlord’s PAN card details are unavailable, you can use a declaration signed by the landlord to claim HRA. However, if any of the two details are unavailable, you may lose out on claiming an HRA tax deduction.
  • The amount exempted as HRA differs from city to city. People living in metro cities can claim up to 50% of HRA tax deductions. Alternatively, people living in non-metro cities can claim HRA tax deductions of up to 40%
  • You may note that the HRA tax deduction applies only if you live in a rented accommodation. Hence, if you have your own house, you cannot claim HRA exemptions
  • However, if you live with your parents, you can claim HRA exemptions by producing rent receipts in your parents’ name. The rent you showed in your HRA exemptions should be reflected in your parents’ income while they file returns on income tax
  • However, the above feature does not apply to your spouse. Hence, you cannot claim HRA deductions by paying rent to your spouse

How to Save Tax with Section 80GG If the HRA clause is not Applicable in Your Case?

Many people are not eligible for HRA tax exemptions per their salary component. So, how can they save tax on house rent? Also, what about self-employed individuals? Can they save on tax if they don’t receive any salary? The answer is yes! One can still claim tax exemptions on house rent without HRA as per section 80GG of the IT Act.

In the case of section 80GG, the maximum deduction amount that an individual can claim should correspond to the minimum of the below amounts:

  • INR 5,000 per month (INR 60,000 per year); or
  • 25% of the gross total income of the taxpayer; or
  • (Actual amount paid as rent) – 10% of total income

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Conclusion 

HRA is a significant deduction for taxpayers that can save on the total tax they pay. However, if you get HRA as a salary component but don’t live in a rented house, you cannot avail of the deduction. It will be fully taxable. You may use an HRA tax exemption calculator to evaluate the tax deduction you are eligible for as per your HRA allowance.

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FAQs: How to Calculate HRA?

Can HRA be claimed by paying rent to parents?

Yes, if you have the provision of HRA in your salary and you live with your parents, you can seek an exemption by showing rent receipts in your parents’ name.

What if an employee missed submitting the rent receipts to the employer?

You may note that you can claim HRA directly on the IT returns. Thus, if you forget to submit receipts of your house rent to your employer as proof, you may claim HRA at the time of filing your IT returns.

Can HRA and home loan deductions be claimed together?

Yes, HRA and home loan deductions can be claimed. If a homeowner is paying back the loan on the home and is living in a rented property, they can claim both HRA and home loan deductions.

Can a taxpayer claim HRA if the person has a house of his own?

Yes, HRA can be claimed by a house owner even if they own a house. However, as mentioned in the post above, you must meet the eligibility criteria for the same. If you own a home in one city and are working and earning a living in another city, you can claim an HRA tax deduction.

Do the armed forces personnel have a separate HRA rate?

Yes, a separate HRA rate is followed for taxpayers working for the armed forces as per the recommendations of the seventh CPC.

What documents work as proof of rent?

Rent receipts paid during a year or lease agreement and bank statements can be used to show as proof of rent paid.

How to claim an exemption for HRA?

To claim an HRA exemption, you may submit rent receipts as proof to your employer. You may also claim an HRA exemption at the time of filing your ITR.

What is HRA full form in salary?

HRA full form is a house rent allowance.

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Jan 02, 2024
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