Calculate your House Rent Allowance (HRA) exemption know HRA exemption Calculation Formula and download HRA Calculator in excel format for easy calculation of exempt HRA Allowance out of Total HRA received by Salaried Assessee.

Employees generally receive a house rent allowance (HRA) from their employers. This is a part of the salary package, in accordance with the terms and conditions of employment. HRA is given to meet thse cost of a rented house taken by the employee for his stay.The Income Tax Act allows for deduction in respect of the HRA paid to employees. The exemption on HRA is covered under Section 10(13A) of the Income Tax Act and Rule 2A of the Income Tax Rules. It is to be noted that the entire HRA is not deductible. HRA is an allowance and is subject to income tax.

House Rent Allowance (HRA) Taxbility & Calculation

An employee can claim exemption on his House Rent Allowance (HRA) under the Income Tax Act if he stays in a rented house and is in receipt of HRA from his employer. In order to claim the deduction, an employee must actually pay rent for the house which he occupies.

HRA Calculation: House Rent Allowance (HRA)

The rented premises must not be owned by him. In case one stays in an own house, nothing is deductible and the entire amount of HRA received is subject to tax. As long as the rented house is not owned by the assessee, the exemption of HRA will be available up to the the minimum of the following three options:

1. Actual House Rent Allowance (HRA) received from your employer

2. Actual house rent paid by you minus 10% of your basic salary

3. 50% of your basic salary if you live in a metro or 40% of your basic salary if you live in a non-metro

This minimum of above is allowed as income tax exemption on house rent allowance.

Salary here means basic salary which includes dearness allowance if the terms of employment provide for it, and commission based on a fixed percentage of turnover achieved by the employee. The deduction will be available only for the period during which the rented house is occupied by the employee and not for any period after that.

Meaning of Salary for calculation the exemption of HRA

  • Salary means (Basic + D.A + Commission based on fixed percentage on turnover).
  • Salary is to be taken on due basis in respect of the period during which the period accommodation is occupied by the employee in the previous year.

Examples for calculation of exemption/deduction of HRA

X has received following amount during the previous year.

1. Basic Salary – Rs. (5000*12) – Rs. 60,000/-

2. Dearness Allowance (D.A) – Rs. (1000*12) – Rs. 12000/-

3. House Rent Allowance (H.R.A.) – Rs. (2000*12) – Rs. 24000/-

4. Actual Rent Paid – Rs.(2000*12) – Rs. 24000/-

Calculation

The minimum of the following amount shall be exempt

  • Actual HRA received (2000*12) – Rs. 24000/-
  • Rent Paid in excess of 10% of salary ( 24000-7200) – Rs. 16800
  • 40% of Salary – Rs. 28800/-

Therefore, Rs. 16800 shall be exempt and the balance Rs. 7200 shall be included in gross salary.

Frequently Asked Questions on House Rent Allowance (HRA):-

1. How is HRA accounted for in the case of a salaried individual and a self-employed professional?

HRA (house rent allowance) is accounted for in the case of salaried people under Section 10 (13A) of Income Tax Act, 1961, in accordance with rule 2A of Income Tax Rules (HRA Exemption Rules). On the other hand, self-employed professionals cannot be considered for HRA exemption under this act, as they do not earn a salary. However, they can claim benefits on the house rent expenses incurred under section 80GG, which resembles section to 10(13A) but is subject to certain conditions.

2. What are the dependent factors in calculating HRA for the salaried individual?

When you are calculating HRA for tax exemption, you take into consideration four aspects which includes salary, HRA received, the actual rent paid and where you reside, i.e., if it is a metro or non-metro. If these aspects remain constant through the year, then tax exemption is calculated as a whole annually, if this is subject to change, as in a rent hike, pay hike or shift in residence etc., then it is calculated on a monthly basis. It is usually rare for all the values to remain constant in a financial year.

The place of residence is significant in HRA calculation as for a metro the tax exemption for HRA is 50% of the basic salary while for non-metros it is 40% of the basic salary. This holds true especially when you work at a metro and reside at a non-metro. In this case, your city of residence only will be considered for calculating your HRA.

3. Can I pay rent to my parents or spouse to avail HRA benefits?

You can pay rent to your parents, however, they need to pay tax on the same or account the same in calculating their taxable income.

On the other hand, you cannot pay rent to your spouse. In view of the relationship when you take up residence together, you are expected to do so and hence such a transaction does not bear merit under tax laws. Sham transactions can only spell trouble under scrutiny, so steer clear of these.

4. Do I need to submit any proof for my HRA claim?

You need to submit proof of rent paid through rent receipts, for which only two need to be submitted, one for the beginning of the year and one towards the end of the financial year. It should have a one rupee revenue stamp affixed with the signature of the person who has received the rent, along with other details such as the rented residence address, rent paid, name of the person who rents it etc.

5. Can I simultaneously avail tax benefits on my home loan and HRA?

The tax benefits for home loan and HRA are two separate entities and have no direct bearing on each other. As long as you are paying rent for an accommodation, you can claim tax benefits on the HRA component of your salary, while also availing tax benefits on your home loan. This could be the case if your own home is rented out or you work from another city etc.

EXTRACT OF RULE 2A OF INCOME TAX RULES I.E. HRA EXEMPTION RULES

[Limits for the purposes of section 10(13A) .

2A. The amount which is not to be included in the total income of an assessee in respect of the special allowance referred to in clause (13A) of section 10 shall be—

(a) the actual amount of such allowance received by the assessee in respect of the relevant period; or

(b) the amount by which the expenditure actually incurred by the assessee in payment of rent in respect of residential accommodation occupied by him exceeds one-tenth of the amount of salary due to the assessee in respect of the relevant period; or

(c) an amount equal to—

(i) where such accommodation is situate at Bombay, Calcutta, Delhi or Madras, one-half of the amount of salary due to the assessee in respect of the relevant period; and

(ii) where such accommodation is situate at any other place, two-fifth of the amount of salary due to the assessee in respect of the relevant period,]

whichever is the least.

Explanation : In this rule—

(i) “salary” shall have the meaning assigned to it in clause (h) of rule 2 of Part A of the Fourth Schedule;

(ii) “relevant period” means the period during which the said accommodation was occupied by the assessee during the previous year.]

Image courtesy of Salvatore Vuono at FreeDigitalPhotos.net

(Republished with amendments)

House Rent Allowance (HRA) Taxability & calculation

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436 responses to “House Rent Allowance (HRA) Taxability & calculation”

  1. VIPIN says:

    VERY NICE

  2. vinod says:

    My Taxable salary in 518920
    Rent 84000/p.a living in pune for employement but in FORM16 employer not shown HRA how much can i claim HRA

    • Peeyush says:

      There are different parameters for claiming HRA, for that i needed some more details, for exact amount of deduction and how to claim it, you can contact me on 9619817557, CA Peeyush

  3. cheriankunju says:

    what is the procedure for calculation of Income Tax by adding rent receieved from house let out along with salary/pension income

    • Peeyush says:

      There are different parameters and different ITR, based on your income and quantum you need to select one ITR and accordingly you can show your both income, you can contact me on 9619817557, CA Peeyush

  4. Sarika Mahale says:

    Sir,
    Thanks for the valuable information. I understand the concept of Rent paid to parents is allowed but my question is that in which mode of payment is allowed under income tax mean rent paid by cash, cheque or bank transfer etc allowed for deduction

  5. DK Jain says:

    Sir,

    I have taken loan from my employer at 0% interest (10 years) and I am paying the Tax on the differential amount of Interest rate with SBI as on last date of the FY. Please confirm can I take any benefit under Income Tax on the differential Interest amount calculated or tax part on the Interest Calculation which is being added in my Income and on which I have to pay Income Tax.

    Beside this I am also claiming HRA as per rules.

    Regards,

  6. vishnu says:

    I joined government job in August 2018. Can I HRA of 1 lakh for these 7 months or Is it like 1 lakh for 12 months or for financial year with any number of months?

  7. Govind REDDY says:

    I am a state government employee and now our salary has hiked to equivalent central government employees with retrospective effect. If my arrears calculated and i got HRA arrears. The difference HRA paid and Arrears received. under this statutory deduction is compulsory or wave up available.

  8. Vishal Sharma says:

    I wish to pay ret to my mother (she is non working) ,

    the residence for which I need to pay rent is co -owned by “mother and father” ,

    can I pay my rent to my mother only , as she is half owner of the property

  9. Amit Bansal says:

    Dear Sir,

    The article is very nicely explained, but I have a question If I am already availing the benefit u/s 24 amounting 200000/-, Should I take advantage of 50% HRA paid by my company.

  10. HARIPRIYA G says:

    What about central government employees? Are the same rules applicable? Kindly, at the earliest, guide through with the exemptions available for central government employees.

  11. RAMAKRISHNA says:

    SIR MY BASIC WAS RS 20000.00 AND DA OF RS 8650.00 AND HRA WAS 2000.00 AND I AM PAYING THE RENT RS 4500.00 P/M

    NOW I DO NOT WANT CLAIM SEC 10(13) BUT I WANT TO CLAIM UNDER SECTION 80GG

  12. Dravidamani says:

    10% of Basic salary + DA was higher than HRA paid. Government salary. HRA Exemption eligible or not?
    Rent received. : 20,100
    Rent paid. : 45,000
    10% of Basic + DA : 53,000

  13. R K MISHRA says:

    we are manufacturing Tool and dies for OEM(s) but as a contract the cost of tooling is to be capitalised at our own. only components will be sold. Now the tooling is our assests till business carried, after closure of transaction being our property we have liberty to dispose off.Now before capitalization how can be Generate GST invoice and pay GST. Please suggest method of capitalization and invoicing system.
    regards
    R K Mishra

  14. vidya sagar bansal says:

    my employer says that contribution of NPS by the employer is to be added in the salary. after adding in the salary deduction u/s 80c will be admisable on both the parts (employer and employee) Is it wright or wrong ?

  15. CA. S.C.Podder says:

    Read carefully the article in respect of HRA calculation and update/ claim for HRA exemption ,
    writer has given clarified in details .

  16. CA Suresh Jain says:

    I have read a few of your articles on income tax exemption s for individuals. You have written each item in detail and have linked earlier articles with each other. Great work. Keep it up.

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