HRA calculation: While filing income tax, it is necessary to know certain exemptions and deductions that can help reduce tax liability. One such exemption provided by the government to salaried employees is House Rent Allowance, or HRA, which can be claimed against the rent paid in a financial year by employees who live on rent. 

COMMERCIAL BREAK
SCROLL TO CONTINUE READING

There are certain conditions that should be met if a taxpayer wants to avail the benefits of HRA exemption. Let’s understand in depth who can avail the benefits of HRA exemption and how to calculate it. 

What is HRA exemption? 

House Rent Allowance (HRA) is a stipend granted by an employer to an employee as reimbursement for rent incurred by the employee. It is paid as part of the employee's salary by the employer.

Who is eligible for HRA exemption? 

-As per the Income Tax Act, salaried individuals are eligible for HRA exemptions under Section 10 (13A) per rule number 2A of the Income Tax Act. 

-Self-employed individuals can also claim deductions and HRA tax exemptions for House Rent Allowance. They are eligible for benefits under Section 80 GG. 

-HRA exemption can only be claimed under the old tax regime and by employees who live on rent.

ALSO READ: Income Tax Return 2023: Check ITR Filling Last Date, How to e-File Income Tax Returns Online - all you need to know detail process 

How to calculate HRA? 

House Rent Allowance received with the salary will not be exempted fully. The least of the following three will be exempted from tax:

-HRA received from the employer

-Actual rent paid minus 10 percent of salary

-50 per cent of the basic salary for those living in metro cities

-40 per cent of the basic salary for those living in non-metro cities

The remainder of the taxpayer’s HRA is added back to their taxable salary. 

To put things into perspective, if the actual rent paid to a salaried person is Rs 1,00,000 and the HRA received is Rs 2 lakh while the annual basic salary is Rs 4 lakh, then 

 

Particulars Amount
Basic salary Rs 4,00,000
HRA received Rs. 2,00,000
50% of Basic Salary Rs. 2,00,000
Excess of Rent paid over 10% of salary Rs. 60,000
Amount of Exempted HRA Rs. 60,000
HRA chargeable to tax Rs. 1,40,000

If the person lives in a city other than one of the four major metropolitan areas, then:

Particulars Amount
Basic salary Rs 4,00,000
HRA received Rs. 2,00,000
40% of Basic Salary Rs. 1,60,000
Excess of Rent paid over 10% of salary Rs. 60,000
Amount of Exempted HRA Rs. 60,000
HRA chargeable to tax Rs. 1,40,000

Catch the latest stock market updates here. For more news on sports, politics follow Zee Business