Best Way to Calculate Your HRA (House Rent Allowance)

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Whether you are a salaried person or self-employed, you always look for various ways to exempt from paying tax. When the different sections of Income Tax Act help the salaried individuals to save on tax by introducing a fraction of ways, House Rent Allowance (HRA) has been considered as an easy-to-claim process, to bring down your tax liabilities. So, it is prudent to know how to calculate HRA  so that you can enjoy a maximum of tax benefits.

House Rent Allowance (HRA)

The actual salary of a person is a combination of few components. HRA is one of the sub-components of the salary. It can be fixed or derived as per the mutual consideration of both employee and employer. The foremost condition here is that an HRA is payable only if the employee stays in a rented residential premises or he/she doesn’t own that property.

The calculation of HRA is influenced by a few factors like-

  • It is given by the employer and not a right of the employee
  • 50% of the employee salary if he/she resides in any metro cities of India like Delhi, Mumbai, Chennai or Kolkata
  • 40% of the salary if the employee lives in cities other than metropolitan cities
  • Actual rent paid minus 10% of the salary

HRA Calculation

To make you understand the HRA Calculation, we are taking an example of Mr. Ramesh who lives in Delhi and drawing a salary INR 54, 250 monthly. He is paying rent of INR 10, 000 per month. From his payslip, we can calculate his HRA that is exempt from income tax-

 

Name

Joining Date

Employee ID

PF No

Category

Ramesh Kumar

21/12/2015

1223

SB/AYE/7654323/123/4567297

Salaried

Basic

30,000

PF

2,000

 

HRA

13,000

Professional Tax

200

 

Conveyance

2,000

 

 

 

Special Allowance

3,000

 

 

 

Medical

1,2000

 

 

 

LTA

5,000

 

 

 

Total earning

54,250

 

 

 

 

Ramesh tax exempted HRA will be:

Salary 30,000 (basic salary) HRA provided by the organisation- 13,000 per month 10% of basic salary- INR 36,000

  • Annually received HRA from employer=INR 13,000x12= INR 1,56,000
  • Actual rent paid minus 10% of basic=(10,000x12)- INR 36,000= INR 84,000
  • 50% of basic salary as he resides in a metro city= (15000x12)= 1,80,000

If we analyse, the least amount in this calculation is 84,000, so it is the HRA of Ramesh which will be exempted from tax.

Conditions for Claiming Tax Exemption on HRA

  • You can claim a tax benefit of HRA along with a home loan, in case your own house is rented out or you work in a different city
  • If you are staying with your parents, you can pay rent to your parents and collect a receipt for HRA claim. However, the rules don't allow you to pay rent to your spouse.
  • In case, if the rent exceeds INR 10,000, the PAN card of the landlord is mandatory to produce top claim HRA. If the landlord doesn't own a PAN card he/she can provide a self-declaration.
  • One must deduct 30% tax from the rent amount that needs to be declared if the landlord is an NRI
  • Apart from a father, if the rent is paid to any other family member, HRA and tax exemption can be claimed, provided the rent is to be paid on regular monthly basis
  • In case of change in the location or change in salary, the HRA tax will be calculated on monthly basis 

Documents Required to Claim Tax Exemption on HRA

  • If the rent amount exceeds INR 1 lakh, the employee will have to produce landlord’s PAN card
  • The rent receipt
  • A revenue stamp
  • Signature of the landlord on the revenue stamp
  • 4 rent receipts as one receipt can be used for a period of 3 months. Hence, for a year. You will need at least 4
  • Xerox copy of the rent agreement 

The biggest benefit of House Rent Allowance is that it provides an option to reduce the taxable amount. However, the current financial year will see certain changes in terms of HRA as well. Going forward each and every document produced by the taxpayer will be examined well and a taxman may ask you for proof of rent agreement or something related to it.

If you are a working individual and living in a rented accommodation, you can claim for HRA exemption, if it is a part of your salary. So, knowing your HRA circle is must as a salaried person to enjoy the maximum benefit out of it.

What is House Rent Allowance (HRA)?


Every employer pays House Rent Allowance (HRA) to its employees as part of their salary.  Basically, the idea is to provide tax benefits to employees against their annual rent accommodation cost.

House rent allowance is not fully taxable; it is subjected to certain terms and conditions. As per Sec.10 -13A of the Income tax Act, 1961 the tax exemption is provided only on a part of the House Rent Allowance.

Who is Eligible to Avail House Rent Allowance (HRA)?

Only a salaried employee who has HRA component as part of the salary and is staying in a rented accommodation can avail tax exemption on HRA. On the contrary, self-employed people and freelancers cannot avail the tax benefits on HRA. 

How to Calculate House Rent Allowance (HRA)?

HRA calculation is done on the basis of the following factors.

  • The salary of the taxpayer
  • House rent allowance component of the income
  • Rent payment
  • Location of the rented house/flat

How much is HRA Taxable?

The minimum HRA exemption under the Income tax act Section 10 (13A) is as follows-

  1. Actual House Rent Allowance that an employee receives
  2. If HRA is lesser than the actual rent amount, then the employer pays the rent amount after deducting the 10 percent of the basic salary.
  3. 40 percent of the basic salary for employees living in non-metro cities
  4. On the other hand, it is 50 percent of the basic salary for employees living in metro cities

To reap the maximum income tax benefits, you can also ask your employer to streamline your salary structure accordingly.

HRA calculation is done annually if the afore-mentioned factors remain constant. But if there is any change in any of the determining factors during that financial year then it will be calculated on a monthly basis.

Documents Required For Tax Exemption on HRA


To avail tax exemption on your House Rent Allowance, you need to submit your house rent agreement with the landlord or the rent receipts.

If your annual house rent is more than Rs. 1 lakh then you need to furnish the pan card of your landlord to the company/employer.

Nevertheless, you can claim the benefits while filing your ITR. In case you fail to provide the proof of rent receipts to your employer, you can claim the benefit at the time of filing of income tax returns.

Remember to keep all the documents safely in your records for future reference.

How to Claim Tax Benefits on House Rent Allowance (HRA)?

For the assessment year 2018-2019, you need to provide complete salary break-up in the basic ITR from 1 also. For that reason, any part of the House Rent Allowance that is taxable needs to be reported while filing the Income tax return.

The form requires you to furnish all the salary/income received by you that are exempted from income tax.

HRA Calculation Illustrations 

Let's say Mr. X has a basic monthly salary of INR 30,000, and he lives in a Delhi which is a metro city. He pays INR 10,000 and gets HRA of INR 15,000. So, how much tax exemption will he get?

Lets’ look at some of the factors that will affect his HRA calculation-

  • Actual HRA received in a year= INR 1,80,000
  • Total rent paid on annual basis after deducting the 10% of the basic salary = INR 84,000
  • 50 percent of the basic salary = INR 1,80,000

So, based on the HR calculation Mr. X is eligible to get a tax exemption of INR 84,000 on his HRA. Because it is the least minimum amount of the above obtained figures.

Special Cases to Claim Tax Benefits on House Rent Allowance

  1. House Rent Paid To Your Parents - You are eligible to claim tax benefit on HRA if you are paying rent to your parents. Documental evidence such as rental agreement, rent receipt and proof of financial transactions is required to get approval on the claim.
  2. If You Staying In Different City But Have Your Own House - If you work in a different city and are staying on a rented property despite having your own house in the hometown, then also you are eligible to claim HRA benefits.
  3. When are You Not Eligible to Claim HRA Exemption- If you are residing in your own house, then you cannot claim tax exemption on your House Rent Allowance

FAQs -  House Rent Allowance (HRA) Calculation

What is HRA tax exemption?

The amount of House rent allowance exemption is deducted from the annual salary before attaining a taxable income.

Can I claim HRA while filing ITR?

Yes, you can claim your House Rent Allowance while filing your ITR.

Is it essential to provide rent agreement/ rent receipt for HRA?

Yes, your rent agreement/ rent receipts are required to claim tax benefits on HRA. In case you forget to do so, you can provide them while filing your ITR. 

Can HRA be claimed if I own a house?

You can only claim HRA if you staying on rent. Suppose you own a house but are staying on rent in some other city due to your job then you are eligible to claim HRA. But if you are residing in your own property you cannot claim it.

Can husband pay rent to wife and claim HRA?

The relationship between you and your spouse is not a commercial relationship; therefore, you are not eligible to claim HRA exemption if you are paying rent to your spouse.

However, if you are staying on rent then you can claim the rent amount.

Can I claim HRA and home loan interest?

Yes, you are eligible to claim tax exemption on both - payment of home loan and HRA/ House rent allowance. Even if you are paying the home loan for a property and are staying in a rented house in the same city – you can claim it.

Is the House Rent Allowance included in 80c?

HRA is covered under Section 10-13A of the Income-tax act and not included under Section 80C.

Is it mandatory to put a revenue stamp on rent receipt?

Revenue stamp is required only when payment is made in cash and the amount is more than Rs.5000. 

How can I claim House rent Allowance if I am living with parents?

You will need to get into a rent agreement with your parents in order to claim House rent allowance benefits. For that reason, your parents will need to show the rent paid by you as their income in their Income Tax return form.

Can rent be paid in cash?

Yes, it can be paid in cash and a receipt will be required to claim it in your ITR.

Is HRA mandatory in salary?

HRA is the most common component of your salary structure that is paid by your employer.

Can I claim home loan interest before possession?

No, it is only possible after the possession. 

What is the HRA salary?

House Rent Allowance/HRA is the amount that you get in your salary from your employer. You can utilize this amount for tax exemption against the rent paid for accommodation.

Is landlord’s PAN mandatory to claim HRA?

PAN card of your landlord is required to declare HRA tax exemption of more than Rs. 1 lakh a year. The taxpayer/employee needs to submit a PAN Card declaration form along with the tax exemption claim form.

How do I claim a tax deduction on House rent allowance if my landlord doesn’t have a PAN card?

In cases, where the owner of the house doesn’t have a PAN card, a declaration from the landlord will be required to authenticate the reason.

However, it is advisable that you check the PAN details before renting the place to avoid any hassles in the future.

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