House Rent Allowance is commonly known as HRA. This allowance is given by the employer to the employee as a part of salary structure and is non-taxable. The purpose of house rent allowance is to provide accommodation expenses to the employee. HRA helps the individual to take benefit in saving income tax return. Read more how HRA exemption is calculated and everything related to HRA exemption.Who can claim for HRA exemption:
As per the law both government and private salaried employees, who are living in a rented apartment can claim for HRA exemption.
A person living in his/her own house can not claim for HRA exemption.
A person who is claiming for HRA tax exemption should hold the rent agreement of the house or rent payment receipt in his/her name.
How HRA exemption is calculated:HRA tax exemption comes under Income Tax Act Section 10-13A. House Rent Allowance is received by an employee from the employer. The maximum amount that can be claimed by an employee under HRA is the lowest from the three amounts.
The actual House rent paid should be less than 10% of the salary.
If a person lives in metro city then 50% of his/her salary is eligible for HRA tax exemption and 40% if he or she lives in a non-metro city.
The actual HRA paid by the employer to the employee.
List of HRA exemption calculators available online:
Here I am giving an example of how HRA exemption is calculated:Rashmi lives in Mumbai and this is her salary structure Salary Component Amount
Basic
27,000
HRA
15,000
Provident Fund
2,000
Medical Allowance
1,250
Special Allowance
2,500
Total
43,450
Formula for HRA tax exemption:Actual rent paid - 10% from the basic salary = Exemption amountTake a look at how to place the figures in the Income tax department calculator in the image below
After calculating Rashmi’s HRA tax exemption in this calculator, the exempted House rent is 9050 INR and the Taxable house rent allowance is 5950
Rules to claim HRA
HRA can’t exceed more than 50% of the basic employee salary.
A salaried employee can’t claim HRA on the full rental amount he or she is paying. The exemption will be the least of the actual amount allotted as HRA by the employer, actual rent paid is less than 10% of the salary, or 50% of the basic salary if the employee is residing in a metro and 40% if the employee is residing in a non-metro city.
Employees are eligible to avail tax exemption of HRA on home loans as well.
Employees residing with parents can pay the rent to the parents and collect receipts for exemptions but the same rule doesn’t apply to pay rent to one’s spouse claim for exemption.
Employees will have to submit the pan card of the landlord if the annual amount being paid as rent exceeds Rs.1 lakh.
If the landlord is an NRI, then the employees can deduct 30% tax from the rent amount that needs to be declared.
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How HRA exemption is calculated?
Mayank Bhisht
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April 12, 2021
2021-04-12T14:17:34+00:00 2021-07-27T15:54:55+00:00Comment
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