House Rent Allowance: Meaning, How to calculate and Rules for HRA Tax Exemption in India

Introduction

If you are a salaried individual, you can use the House Rent Allowance (HRA) to cover the costs of renting a home. Salaried people who rent a home can use this exemption to reduce their taxes. The House Rent Allowance (HRA) is a payment made to an employee by his or her employer in exchange for compensation for housing costs. It is a part of the salary that the employer pays to the employee. This article will walk you through the information on “What is HRA?”, rules for HRA tax exemption in India, “How to Calculate HRA?”, and FAQs on House Rent Allowance (HRA).

What is HRA (House Rent Allowance)?

HRA is an abbreviation for House Rent Allowance. The employer pays its employees House Rent Allowance (HRA), a portion of their salary, to cover the cost of rented housing. Section 10 of the Income Tax Act of 1961 exempts the HRA from taxation, and either a partial or complete exemption may be requested. The most recent HRA calculator can be used to determine whether an HRA is taxed or exempt. It is determined by a person’s salary. Additional variables such as dearness allowance, commission received, and city of residence all have an impact on the calculation.

Rules for HRA Tax Exemption in India

The following three conditions, however, have the lowest amount of HRA tax exemption that you can claim:

• The amount of HRA your company has provided you with.
• 40% of basic pay for residents of non-metropolitan areas
• 50% of the basic salary for those living in a metropolitan area.
• The exact rent you pay for your home, less 10% of your base salary.

Note: The “basic salary” includes a dearness allowance as well as any other commissions earned in addition to your regular earnings.

Claiming rules for House Rent Allowance (HRA)

• Your HRA cannot be more than 50% of your basic salary.
• HRA tax benefits can also be obtained in conjunction with a home loan.
• If you live with your parents, you may pay rent to them and obtain a receipt for your HRA claim.
• If the annual rent of your accommodation exceeds INR 1,00,000, you must present the landlord’s PAN card. In addition, if the landlord does not have a PAN card, he or she may provide a self-declaration form.
• Another important rule is that if your landlord is a non-resident Indian (NRI), you must deduct 30% tax from the rent amount that must be declared for HRA exemption.

How to calculate HRA?

Your HRA calculation in salary can be estimated using the following factors:

• Your actual rent paid less than 10% of your base salary.
• The amount of HRA you received.
• 50% of your base pay (for a metropolitan city).

Below is the example on “How to calculate HRA?”

For example, suppose Mr X earns INR 60,000 per month in basic salary, receives a 30,000 HRA, and pays INR 12,000 in rent in a major city.

To qualify for HRA benefits, he must pay the least amount (per year), with the remainder being taxable:

The Exempted House Rent Allowance is equal to the lowest of the above-mentioned amounts, which is 72,000.

FAQs on House Rent Allowance (HRA)

1. Is it possible to claim a tax exemption on HRA?

No, not everyone is eligible for HRA tax exemption. Although HRA is included in most employees’ salaries, the exemption is only available to those who pay rent. HRA exemption does not apply to self-employed individuals.

2. Can I claim both the HRA tax exemption and the home loan interest deduction at the same time?

Yes, this is a possibility. You could be renting a house in one city while owning a house (for which you are repaying a home loan) in another.

3. Can the maintenance fees I pay for my apartment count toward HRA tax exemption?

No, HRA exemption can only be claimed for rent paid. You will not be able to deduct the costs of maintenance or electricity. These fees are also not included in the landlord’s earnings when calculating income tax.

Summing Up

You should plan your HRA exemptions and deductions well in advance of the assessment period now that you understand what HRA is. A thorough understanding of HRA, its benefits, and how it allows you to save tax will greatly aid you in avoiding the loss of your hard-earned money.