How much HRA can be claimed?

One of the most important components of an individual's compensation package is the House Rent Allowance (HRA). Paying for a percentage of an employee's housing rental costs is a substantial benefit offered by businesses. But do you know how much HRA can be claimed? It depends on the taxpayer’s salary, rent paid, and city of residence. 

How much HRA can be Claimed in ITR?

The least of the following three amounts are exempt from tax:

1. 50% of salary (basic salary + dearness allowance) if living in a metro city (Delhi, Mumbai, Chennai, Kolkata), or 

2. 40% of salary for non-metro cities.

3. Annual Rent paid minus 10% of salary (basic salary + dearness allowance).

The remaining amount (if any) becomes taxable and is included in your total income. Tax exemption is higher for individuals living in metro cities, as they can claim 50% of their salary, compared to 40% in non-metro cities.

If sharing accommodation, the exemption is calculated based on the taxpayer’s portion of the rent. If your basic salary is Rs.6,00,000 annually, you receive Rs.2,40,000 as HRA, and pay Rs.1,80,000 as rent in a metro city:

1. Actual HRA received = Rs.2,40,000

2. 50% of salary = Rs.3,00,000

3. Rent paid minus 10% of salary = Rs.1,80,000 − 60,000 = Rs.1,20,000

HRA exemption = Rs.1,20,000 (least of the three).

This is all about how much max HRA can be claimed.

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Can You Claim HRA for Rent Paid in Another City 

HRA or House Rent Allowance is a part of most salaried employees these days. There are tax exemptions on HRA under section 10 (13 A) of Income Tax Act 1961. It is important to note that HRA is taxable if the employee lives in his own house. Now let us look at how much HRA can be claimed without proof. 

Get Free Estimate

The employee has to produce the proof of rent payment if the HRA exceeds the amount of Rs. 3000 per month. Otherwise, the HRA can be claimed without producing proof.

HRA exemption for a salaried individual is the lowest of the following amounts:

• The actual HRA;

• 50% of basic salary + Dearness Allowance (DA)

• Actual rent paid - 10% of basic salary plus DA.

Let us understand how much HRA can be claimed with the help of an example:

Suppose, Rajesh is living in a rented apartment in Bangalore and pays monthly rent of Rs. 18,000. He forgot to submit the rental agreement to his employer which has led to higher TDS deduction. His basic salary is Rs 50,000 per month and his employer is paying monthly HRA of Rs 20,000. Therefore, in-hand receipt from your employer is Rs 70,000 p.m.

So, the HRA claimed will be 

• Actual HRA received: Rs. 20,000 x 12 = Rs. 2.4 lakhs

• 50% of basic salary: Rs. 50,000 x 50% x 12 = Rs. 3 lakh

• Excess of rent paid: Rs. (18,000 - 50,000 x 10%) x 12; Rs. 13000x 12 = Rs. 1.56 lacs

The tax exempt portion of HRA comes out to be Rs 1.56 lakh whereas the balance Rs. 84000 is the taxable part.

I hope this solves your query.

1. Is HRA taxable?

2. Is rent agreement mandatory for HRA exemption

3. Can I claim HRA and home loan both?

Are you a salaried person or an Entrepreneur? Well whatever your  professional status is you should know about HRA and how much hra can be claimed.

HRA (House Rent Allowance) is a component of salary structure, provided by an employer to the employee. A person who is living in a rented accommodation is eligible for HRA in his/her salary. If an employer is not providing a house rent allowance in the CTC,  then the employee can claim his/her rights in the court. Please note that this HRA component is non-taxable, unlike the basic salary. 

The maximum HRA amount that an employee can be claimed is the lowest of the following three amounts: 

• Actual house allowance is provided by the employer to the employee.

• 40% of basic salary if the work location is non-metro city and 50% of basic salary is the work location is metro city. 

• House rent paid is less than 10% of the salary.

• Rent agreement.

• Rent payment receipts should be provided on a monthly or quarterly basis. 

• You can not claim that you have paid rent to your spouse.

• If the annual rent paid amount is more than 1 lakh, in that case you will have to submit the pan-card details of the landlord for the IT department to claim for HRA exemption.