HRA CALCULATION

Updated on : 2020-Dec-13 16:38:19 | Author :

House Rent Allowance (HRA) Calculation

House Rent Allowance is a element of the remuneration paid to staff by their employers for meeting the price of renting a home. It offers tax benefits to the staff for the add they pay towards their accommodation annually. Salaried people living in rented homes will claim this exemption and reduce their tax liability. The employer determines what quantity HRA is to be paid to the staff, according to certain criteria like the town of residence, salary, etc. Provisions regarding HRA may be found under Section 10(13A) of the income tax Act, 1961.

The important point to be noted is that salaried individuals who have the HRA element as part of their salary structure and are living in rented homes can only claim HRA tax benefit. Self-employed individuals cannot claim this benefit.

Factors that Affect HRA Calculation

While calculating HRA for tax exemption, four factors of a salaried individual are taken into consideration:

  • Salary
  • Actual rent paid
  • HRA received
  • Place of residence (metro or non-metro)

If these stay constant through the year, tax exemption are assessed as a whole annually. just in case of any amendment, like pay hike, shift of residence, etc. the quantity are computed on a monthly basis.

How much HRA is Exempt from Tax?

The total HRA received by employees is not always fully tax exempt. The actual HRA offered will be the least of the next three:

  • The amount received as HRA from the employer
  • Actual rent paid minus 10% of salary
  • 50% of basic salary for those living in metro cities and 40% for those living in non-metro cities

To understand the process of HRA tax exemption calculation, consider this example:

Mohit lives in city and draws a basic remuneration of Rs. 20,000 per month. The HRA offered by his employer is Rs. 10,000 each month and Mohit pays Rs. 8,000 as rent each month. The exemption that Mohit will claim are going to be the minimum of the subsequent 3 options:

Actual HRA received from the employer = Rs. 10,000 Actual rent paid less 10% of remuneration = 8,000 - 10% of 20,000 = Rs. 6,000 50% of basic remuneration = Rs. 10,000

Here in Mohit’s case, the HRA quantity which will be exempt from tax is Rs. 6,000, since it's the smallest amount of the 3 situations.

Rules for HRA Claims

The following are the rules involves in HRA claims:

  • HRA cannot surpass 50% of the basic salary.
  • It is not possible to claim tax exemption on the full rental amount that is being paid. The exemption allowed will be the least of the next three options:

1-)The amount received as House Rent Allowance from the employer

2-) Actual rent paid(-) minus 10% of salary

3-)50% of basic salary for those living in metro cities and 40% for those living in non-metro cities

  • HRA tax benefits can be availed together with a home loan.
  • If an employee is residing with his or her parents, the individual can pay them rent, get a receipt of the payment and then make a claim of HRA. It must be noted that it is not possible to claim HRA for rent paid to spouse.
  • It is compulsory to present the PAN card of your landlord in case the rent crosses Rs. 1 lakh during a year. If the house owner does not have a PAN card, he /she can provide a self-declaration on a paper.
  • Should the landlord be an NRI, then 30% tax needs to be deducted from the rent amount that is required to be declared.

Proof of HRA

• In case the entire quantity claimed as HRA is up to Rs. 3,000 a month, there's no need for proof, simply a declaration can fulfil.

• In case the entire quantity claimed as HRA is between Rs. 3,000 and Rs. 8,333 a month, then rent slips with the signature of the owner is needed.

• In case the whole amount claimed as HRA is over Rs. 8,333 a month, then rent receipts with the signature of the owner and PAN number of the owner is required. If the owner does not have a PAN card, he or she will provide self-declaration on a paper.

Claiming of Tax Benefit on Home Loan and HRA

Tax advantages on HRA is claimed by an individual as long as he or she is paying rent towards the accommodation. To avail tax advantages on home loan and HRA at a similar time, the individual should have rented out his or her home and is himself or herself staying at a rented place.

In case the owned and also the rented house are within the same town, then it's not possible to claim tax exemption on each. But, if the individual will prove that the property he or she owns is far from work, and has so rented a place, then tax exemption is claimed on each HRA and housing loan.

 

 

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