House Rent Allowance (HRA) is a common part of the salary for many employees. For individuals residing in rented homes, it can provide significant tax savings. Want to learn how to avail of HRA deductions for tax relief? Keep reading to learn the important details about HRA and how one can benefit from it.
What Is An HRA Calculator?
Over the last decade or so, the cost of living has risen significantly in most Indian cities. This is partly due to an increase in disposable income and inflation. To ensure the welfare of employees, various companies provide House Rent Allowance or HRA to those living in a rented home. The HRA calculator helps you to determine the amount you receive as an HRA.
The HRA slabs across India have been changed greatly after the recommendation of the 7th Pay Commission. The HRA calculation according to the 7th Pay Commission, now, categorized cities into 3 distinct slabs; X, Y, and Z. While, slab X has the metropolitan cities where you of course need an HRA exemption calculator, slab Y is for the urban cities with moderate affordability, and slab Z has towns with the lowest affordability.
Eligibility Criteria To Avail HRA
A portion of the House Rent Allowance (HRA) can be deducted from taxes under Section 10(13A) of the Income Tax Act, provided that the specified eligibility criteria are fulfilled:
- Should be a salaried individual.
- Should receive HRA as a salary component.
- Should live in a rented house.
- Should be paying house rent, i.e., the rent receipts should be issued in your name.
How To Calculate HRA in India?
In the context of HRA calculation, salary is calculated as the basic pay along with the Dearness Allowance and any additional variable commissions.
The subtracted amount for HRA tax is the minimum of the following options:
- The actual rent paid minus 10% basic salary
- The actual HRA employer provides to the employee.
- 40% of the basic salary if the employee is living in a moderately expensive city, and 50% of the basic salary if the house is located in Mumbai, Delhi, Chennai, or Kolkata.
For instance, if Mr. X lives in Delhi in a residential area paying Rs 15,000 every month, and receives a monthly HRA of Rs. 10,000. The following is his pay structure breakdown based on our HRA calculator.
- Basic Salary: Let’s assume Basic = Rs. 15,000 (50% of the total salary).
- HRA: We can assume HRA = Rs. 10,000 (about 33.33% of total salary).
- Conveyance: Rs. 2,000 (about 6.67% of total salary).
- Medical: Rs. 750 (about 2.5% of total salary).
- Special Allowance: Rs. 2,250 (about 7.5% of total salary).
| Salary Component | Amount (Rs.) |
| Basic | 15,000 |
| HRA | 10,000 |
| Conveyance Allowance | 2,000 |
| Medical Allowance | 750 |
| Special Allowance | 2,250 |
| Total | 30,000 |
Now, for the HRA Exemption Calculation:
- Actual Rent Paid: Let’s assume Rs. 10,000.
- Basic Salary: Rs. 15,000.
The tax deduction will be the least of the following three:
- Actual rent paid – 10% of basic salary = Rs. 10,000 – (10% of Rs. 15,000) = Rs. 10,000 – Rs. 1,500 = Rs. 8,500.
- Actual HRA offered by the employer = Rs. 10,000.
- 50% of Basic Salary = 50% of Rs. 15,000 = Rs. 7,500.
The least of these three values is Rs. 7,500. Therefore, the HRA exemption will be Rs. 7,500 for the tax calculation.
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How Is Exemption On HRA Calculated?
The calculation for HRA exemption follows the guidelines outlined in Rule 2A of the Income Tax Rules. According to this rule, the smallest of the following amounts is exempt from salary under Section 10(13A) and is not included in the taxable income.
- Actual HRA received from the employer
- For employees living in metro cities: 50% of (Basic salary + Dearness allowance)
- For employees living in non-metro cities: 40% of (Basic salary + Dearness allowance)
- Actual rent paid minus 10% of (Basic salary + Dearness allowance)
How Is HRA Taxed?
If the payment of your rented house is more than Rs 1,00,000/- annually, then the employee must provide the PAN number of the landlord while filing income tax returns. Let’s understand the HRA that would be exempt from income tax with the help of an example.
Mr. X, let’s suppose is employed in Mumbai, and is living on rent for which he pays a monthly rent of Rs 25,000/-. He earns a basic salary of Rs 45,000/- per month, along with DA (Dearness Allowance) of Rs 7,000/- per month which forms a part of the salary. He also receives Rs 1 Lakh from his employer during the year.
HRA Calculator Income Tax
| Sr No. | Particulars | Amount |
| 1 | Actual HRA received | ₹ 1,00,000/- |
| 2 | 50% of [(45,000+7,000)*12] | ₹ 3,12,000/- |
| 3 | Actual rent ₹ 3,00,000 minus 10% of [(45,000+7,000)*12] | ₹ 2,37,600/- |
| 4 | HRA deduction = Least of 1, 2, 3 | ₹ 1,00,000/- |
Hence, Under Section 10 (13A), Rs 1,00,000/- would be exempt from salary.
Besides, if Mr. X is paying rental expenses but doesn’t receive an HRA as a part of his salary from the employer or if he is paying rental expenses but doesn’t have a salary income, the benefit of paying rental exchanges can still be claimed under Section 80GG of the Income Tax Act., 1961.
FAQs About HRA Calculator
1) Can I get both tax exemption on HRA and a tax rebate on my home loan?
If you live in a rented house and pay rent, and you also have another house for which you are paying a home loan, you can claim both HRA and home loans at the same time.
2) How can I claim an HRA exemption?
You can claim an HRA exemption by submitting documents of rent receipts to your employer. On the other hand, you can claim your HRA exemption yourself while filing your ITR.
3) Can I claim HRA as a tax deduction, even if I own a house?
Yes, claim HRA as a tax deduction. If you own a house in Delhi, and you are a working employee in Mumbai and paying rent there. In this case, you can claim a tax deduction on the amount of HRA received as a salary component from your employer.
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