HRA Calculation and Exemption - Calculate your House Rent Allowance

HRA (House Rent Allowance) is one of the primary components of the salary of a person. HRA is that part of the salary that an employer pays to her/his employees for covering up the expenses related to accommodation. HRA depends on several factors, such as the salary of a person, the rent being paid, the basic component of the salary, location of the rented accommodation. Depending on some factors, exemption on HRA can be sought. For a person who actually lives in a rented house, exemption on HRA helps in income tax savings. However, if a person does not live in a rented house and yet is getting HRA as salary component, the full amount received as HRA is taxable.

It is important to understand the exact amount that is taxable. For any salaried person, the complete amount received as HRA may not be exempt from tax. Therefore, the whole procedure of HRA calculation and exemption must be clearly understood. There are certain parameters that decide what HRA is going to be or what is the limit of HRA exemption that can be had. Actually, HRA is the lowest of the below mentioned four factors:

1. The actual amount received as HRA from the employer.
2. The rent that you have actually paid reduced by 10% of the salary.
3. 50% of the basic salary, in case the place of residence of the tax payer is in a metro location.
4. 40% of the basic salary, in case the place of residence of the tax payer is in a non-metro location.

This also forms the basis of salary re-structuring (done by the employer) to help the employee save on taxes. This is helpful because the lowest of the above mentioned factors is eligible for exemption from income taxes.

In several cases, there have been instances when a person residing in an accommodation owned by her/his parents has claimed HRA tax exemption. However, this benefit can be availed of only if the property/residence in question is actually owned by the parents and the income from this rent (given by you) is stated as income by them while filing the income tax returns.

For the persons who live independently and pay rent to the tune of more than 1 Lac per annum, for claiming HRA tax exemption, the submission of the landlord’s PAN card is mandatory. There is an important pointer here however. There may be salaried persons who do not get any HRA from their employers. Even such employees can seek tax exemptions under Section 80 GG of the Income Tax Act.

To understand the HRA exemption process in detail, it is important to understand with the help of a practical example. Let’s take the example of a person X. Suppose X lives in New Delhi in a rented accommodation, where she pays Rs 10000 as monthly rent. Suppose X’s basic salary per month is Rs 50000 and an annual component of Rs 1 Lac as HRA is also part of her annual salary package.

Then,

Actual HRA received by X = Rs.100000

Rent that she pays reduced by 10% of her basic salary = 120000 – 60000= 60000

50% of X’s basic salary = 50% of Rs 600000 = 300000

Least of the above is Rs. 60000.

Therefore, X is eligible for HRA exemption of Rs 60,000.

You can calculate your HRA exemption online by providing certain basic information regarding your salary, location, HRA received etc.   

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