Is your income tax becoming a burden on your finances? Is it affecting the expenses of your day-to-day expenses? Are you looking for means to decrease the income tax amount? If your answer to all these questions is yes, you must know about HRA exemption and HRA calculation.
You can effectively reduce your income tax amount through HRA calculation for income tax while remaining legally clear. Here, you will know everything about how to calculate HRA, how to use the HRA calculator online, and how to implement it in your ITR filings to reduce the final income tax amount.
What is HRA?
House Rent Allowance, popularly known as HRA, is a part of your salary provided by your employer for the expenses towards rented accommodation. It is covered under Section 10 (13A) of the income tax Act, 1961. However, it is important to keep in mind that you can only claim HRA if you are living in rented accommodation.
Who is Eligible for Claiming HRA?
You can only reap the benefits of HRA if you are a salaried employee who lives in a rented house. As an employee, you can claim HRA exemption under Section 10 of the Income Tax Act. However, HRA will be taxed if you fail to provide proof of your rented accommodation.
Note: In case the rent that you are paying exceeds Rs. 1,00,000 in a financial year, you need to furnish your landlord’s PAN card details along with the HRA claim.
How is Exemption on HRA Calculated?
To get an exemption on HRA for the rents you pay, you must file ITR. You will still have to pay taxes like TDS and TCS and lose out on several tax relaxations if you don’t. HRA is also a relaxation that you can claim only through filing income tax returns. In India, during FY 2013-14, there were 36.51 million taxpayers who filed income tax returns. But there were still 17.29 million people who paid taxes but didn’t file the returns.
If these people who didn’t file returns did file them, they could have saved a lot of money spent on taxes with the help of income tax relaxations. HRA is also a crucial relaxation among them. There are two methods to calculate HRA exemption: manual calculation or an HRA calculator online. We will discuss these methods in detail to receive help in HRA calculation for income tax returns filing purposes.
Manual HRA Calculation
If you are a taxpayer and get a fixed salary with an HRA component, then the maximum amount you can claim as deductions will depend upon a few criteria. In this case, there are three criteria, and your maximum HRA exemption amount is the least among these conditions. These are applicable only while claiming tax returns on Section 10(13A) and the Rules in 2A.
- Total HRA amount earned in a year.
- 50% of your basic salary and DA in a year if you live in a metropolitan city; otherwise, 40%.
- Your annual rent with the subtraction of 10% of your basic salary and DA.
HRA Calculator Online
In the case of online HRA calculation for income tax, you can rely on any good HRA exemption calculator. These HRA exemption calculators perform the same calculations based on the above methods to provide the results. It is comparatively more straightforward and efficient. You don’t need to calculate the HRA exemption manually, and the calculator uses the latest details regarding the figures and percentages.
Before using the HRA calculator online, you will need to gather some details. Given below are those important details which you will need whenever applicable.
- Employment Status
- City’s Metropolitan Status
- HRA Amount
- Basic Salary
- Dearness Allowance
- Adjusted Total Income
- Rent Amount
HRA Calculation with Example
Sumit earns an annual salary of INR 7,00,000. It constitutes INR 4,00,000 as the basic salary & DA and INR 1,00,000 as the HRA. He also lives in a rented apartment with an annual rent of INR 1,50,000 in a non-metropolitan city where he works. The manual HRA calculation will be as given below.
|Sr. No.||Condition||Calculation||Final Amount (INR)|
|2||40% of basic salary + DA||40% of 4,00,000||1,60,000|
|3||Annual rent – 10% of basic salary + DA||1,50,000 – (10% of 4,00,000)||1,10,000|
|Least Amount||1,00,000 (Sr. No. 1)|
So, Sumit can claim a maximum relaxation of INR 1,00,000 in that FY. But now, what if a person does not have a fixed salary or HRA due to unstable work in a self-employed job? And what if their salary is dependent on the amount of time they put in or the units of work they complete? In such cases, they can claim relaxations on Section 80GG. The three criteria for this section are as follows: the maximum relaxation available will be the least of these three.
- INR 60,000 per year (5,000 x 12).
- 25% of the adjusted total income.
- Actual annual rent with the subtraction of 10% of the adjusted total income.
Note: Adjusted Total Income is the sum of all the incomes with subtraction of all the capital gains and deductions as per the sections of the Income Tax Act.
For example, Deepika has an adjusted total income of INR 9,00,000 and pays a rent of INR 2,00,000 in a given financial year. Then the HRA calculation for the exemption will be as follows.
|Sr. No.||Condition||Calculation||Final Amount (INR)|
|1||INR 60,000 per year||60,000||60,000|
|2||25% of adjusted total income||25% of 9,00,000||2,25,000|
|3||Annual rent – 10% adjusted total income||2,00,000 – 10% 9,00,000||1,10,000|
|Least Amount||60,000 (Sr. No. 1)|
So, based on this calculation, Deepika can claim a maximum relaxation of INR 60,000 per year.
HRA in New Tax Regime
If you opt for the new tax regime, you will have to forego a few major benefits like Section 24(b), Section 80C, and House Rent Allowance. HRA is a primary component of an employee’s salary, which varies between 40-50% of their basic salary. So, the big relief that HRA provides to salaried employees will not be applicable under the new tax regime.
Tax Benefits for HRA
Let’s look at some tax benefits on House Rent Allowance:
You can claim a deduction on HRA during income tax filing even if you are living in your parent’s house, as long as you have a valid proof of paying rent.
If you are paying EMI on your home loan (which is not located in the city of employment), you can reap HRA tax benefits. However, in case the house is situated in the same city, you will need to present valid proof as to why you cannot live there in order to claim HRA exemption.
Documents Required to Claim Tax Exemption on HRA
To claim this tax exemption based on the HRA calculation, you must be eligible and furnish a few documents. Below are the eligibility criteria for HRA exemption, followed by the required documents.
- You cannot claim HRA exemption if you are not living in a rented apartment.
- You can claim an HRA exemption even if you live in your parent’s home. For this, you will have to show proofs of rent payments receipts and rent agreement.
- If you, your spouse, your children, or any HUF member owns the house you live in, you cannot claim exemption. You cannot claim an exemption if this house exists and you live in a rented house in the same city. However, this rule doesn’t affect if you can prove that you live in a rented house because the daily commute from your own house to the office is practically impossible.
- If the annual rent is more than INR 1,00,000, then you also need to submit the PAN of the landlord. If the PAN is not available, a self-attested declaration is admissible.
- If the monthly rent is more than INR 5,000, you cannot make cash payments, and if you do, you will require revenue stamps.
- You cannot claim HRA exemption if you choose the new tax regime applicable since FY 2020-21. HRA exemption is only applicable in the old tax regime.
Required documents to claim exemption based on the HRA calculation for income tax:
- PAN card
- Landlord’s PAN details
- Form 16 from the employer, which does denote the HRA allowance.
- Rent payment receipts
- Rent agreement
- Proof of adjusted total income
HRA Rules for Self-Employed Individuals
It is usually believed that only salaried individuals can claim HRA tax exemptions. However, self-employed individuals can also claim tax deductions and exemptions toward the HRA (House Rent Allowance). Self-employed individuals can claim these deductions under section 80GG of the Income Tax Act.
Note: Even the salaried employees who are not getting any HRA benefits can also claim deductions under section 80GG.
In order to avail of the benefits, the taxpayer must fill out Form 10BA while they file for tax return. The following are the details you need to fill in the form:
- PAN details
- Rent amount
- Full address
- Residency tenure
- Landlord’s name and address
- Landlord’s PAN number (in case your rent is above 1 lakh in a year)
- Mode of payment
Apart from this, you also need to submit proof that you don’t own any residential accommodation in your or your spouse’s name.
Conditions for Claiming HRA Exemption
- Your assigned HRA should not exceed more than 50% of your salary.
- As an employee, you cannot claim the full rental amount that you are paying. The exemption will be based on the least of the two: 1. 50% of the basic salary if you are staying in a metro city and 40% for the non-metro cities. 2. The amount is given by the employer as the HRA.
- You can avail tax benefits of HRA along with a home loan as well.
- Even if you are staying with your parents, you can pay rent to them and collect a receipt to claim HRA.
- If your accommodation rent exceeds Rs. 1,00,000, then it is important to present your landlord’s PAN number.
You went through everything about how to calculate HRA through manual calculations and an HRA exemption calculator. These will be extremely useful when performing HRA calculations for income tax returns filing processes. So please use it and avail the maximum deduction to reduce your income tax amount. It will allow you to set aside more money for personal and necessary expenditures.
While calculating the TDS, the employer will not include the deductible HRA exemption in such cases. It will increase your TDS share, and the employer will deduct a higher amount as TDS. When you claim HRA exemption and file ITR, you get a refund of this excess amount, thus saving you money spent as income tax.
HRA benefits can only be assessed by the salaried employees who live in rented accommodation.
Yes, as a salaried employee, you can avail HRA exemption as well as interest deduction benefits at the same time.
4. Can I claim HRA tax exemption when paying rent to a family member?
Yes, an individual living in their parents’ house can pay rent to their parents and claim exemption for the HRA.
Yes. You can claim HRA exemption without submitting a rent agreement as it is not mandatory. However, in some cases, especially while living as a renter in your parents’ house, these agreements will be valuable in defining the tenant-landlord relationship.
No, electricity bills, maintenance charges, utility payments, etc., are not included in HRA tax exemption, instead, they are only allowed on the rent payment.
You can still claim the HRA benefits even if you not possess the rent related documents by manually submitting the HRA amount that is tax-exempted.
Yes, as long as you are residing within a rented accommodation, you can claim for HRA exemption.
Yes, you can claim for both the tax rebate on your home loan and HRA tax benefits at the same time.
Any person who is living in a rented accommodation can claim the HRA tax deduction under Section 80GG of the Income tax act.