HRA in salary is an essential taxable part that the employer provides to the employees as compensation to cover the HRE (House Rent Expense). However, it varies based on cities, employees’ salary structure and actual salary of the employee. So, to know more about the details of how to calculate HRA in salary, we will discuss the various topics –
What is HRA?
HRA (House Rent Allowance) refers to the compensation of the employee, which is provided by the employer for employees’ rented accommodation.
If your employee is living in a rented house, then the employee can claim for exemption on HRA fully or partially, which they will get at the end of the financial year or on a monthly basis, but it is applicable on various factors, such as location (cities), basic pay, dearness allowance and commissions.
How to calculate HRA Exemption?
Following are the steps to calculate HRA exemption –
First consider the following values:
- Actual HRA (House Rent Allowance) received from the employer
- Actual rent paid minus 10% of basic pay and dearness allowance
- Living in metropolitan city 50% of basic salary + dearness allowance
- LIving in non – metropolitan city 40% of basic pay + dearness allowance
Among the above, whichever is the least amount is exempt.
i.e. Actual HRA – Least amount = Taxable HRA
Let’s considered with an Example –
Mrs Aproova resides in Delhi and Aniketresides in Bangalore both are living in a rented house, Mrs Aproova paying Rs.7,000 PM and Aniket paying 6,000 PM. Both Basic pay is Rs.35,000, DA is Rs.5,000, HRA received Rs.10,000 from the employer. Calculate the total taxable HRA and exempted HRA of both.
|Particulars||Mrs Aproova (Amount)||Mr Aniket (Amount)|
|DA (part of salary)||5,000||5,000|
|HRA Received (10,000)||10,000||10,000|
|Rent Paid minus 10% of (Basic + DA)||3,000
[(7,000 – (10%*40,000))]
[((6,000 – (10%*40,000))]
|Residing in metro city||20,000
[50%*(35,000 + 5,000)]
|Residing in non – metro city||–||16,000
[40%*(35,000 + 5,000)]
|Exempted House Rent Allowance||3,000 PM||2,000 PM|
|Taxable House Rent Allowance||7,000 PM||8,000 PM|
If you are staying in the metropolitan city, then you can avail up to 50% exemption of salary and for non – metropolitan up to 40% exemption of salary, actual salary, dearness allowance and others.
Condition to claim Exemption under HRA
There are certain conditions to claim an exemption under HRA –
- HRA is applicable when an employee pays rent to the landlord.
- As a salaried employed person, you can claim an exemption based on the least amount.
- In case the landlord is NRI, then you have to deduct 30% of the tax from the rent amount that you need to declare.
- In case your annual rent exceeds Rs.1,00,000, then you have to submit your landlord’s PAN details, if your landlord doesn’t have a PAN card, then they can provide self-declaration in FORM 60.
- If you are staying with your parents and paying rent, you can also claim for HRA exemption but similar conditions will not be applicable for spouses.
- You can avail of tax benefits with a home loan along with HRA exemption provided both are two different houses.
- No HRA deduction for the period when you don’t pay rent.
- If HRA is not a part of your salary then you can claim HRA exemption during the filing tax return under section 80GG.
Documents Required to Claim Tax Exemption under HRA
The following document is required while you claim tax exemption under HAR –
- There are various elements which need to be included in the rent receipt –
- Date of rent receipt
- Name of the landlord
- PAN details of the landlord (if rent exceeds Rs 1 Lakh per annum)
- Proper address of rental accommodation
- Tenant’s name
- Rent payment duration
- Stamp with the signature of the landlord.
That rent receipt is eligible for 3 months and once a year a total of 4 receipts needs to be eligible.
- Also, you can provide a Photocopy of rent agreement, if you don’t have a rent receipt.
Is it mandatory to produce a rent receipt while claiming HRA?
Yes, if your monthly rent exceeds Rs.3,000, then it is mandatory to provide a rent receipt. But, if your monthly rent is less than that, then you need not provide a rent receipt.
Is it possible to claim HRA for two houses?
No, you can claim HRA for only one house.
Does HRA fall under section 80C?
No, it falls under section 10(13A).
Home loan interests will help me to claim HRA & deduction on home loan interests?
Yes, if you have your own house but still, you are staying in a rented house for some reason. At the same time, you can claim for HRA and exemption on a home loan.
What do you need to do if you forget to submit your rent receipt to the employer?
If you forget to submit your rent receipt to the employer during the proof submission, later, you can claim your HRA directly while you file your tax return. You have to adjust your taxable income to include HRA and then calculate tax which is payable on the lowest taxable income. Then you can claim your refund if tax will be deducted in excess.
Does HRA include maintenance charge or electric charge?
No, maintenance charge or electric charge you can’t claim as HRA. Because it is not considered as the earnings of the landlord.
This brings us to the end of our discussion on how to calculate HRA. Let us know if you have any other questions and opinions on this topic. Mention the comment box below.