HRA, or House Rent Allowance, is a key component of a salaried professional’s gross monthly salary. Employers offer the HRA to allow employees to pay for rented accommodation. The HRA might be higher or lower than the amount an employee pays towards house rent. The Income Tax Act 1961 allows employees to claim tax exemptions on the HRA if they live in rented accommodation. An HRA tax exemption calculator enables you to check how much HRA is taxable and how much is not. Section 10(13A) and Rule 2A of the Income Tax Act 1961 lay down the rules governing HRA tax exemption. Read on to learn more about the HRA calculation formula and the benefits of using an online HRA calculator to calculate your tax liabilities.
- Exempted HRA
- Taxable HRA
Do you live and work in a Metro city?
- Exempted HRA
- Taxable HRA
- House Rent Allowance
The cost of living has been consistently rising in India. Besides inflation, the rise in people’s disposable income has also contributed to the increasing cost of living. To help employees tackle the cost of rented accommodation and its related expenses, employers provide a House Rent Allowance (HRA) every month. An HRA calculator, a.k.a. an HRA exemption calculator, helps you to figure out the amount you can save from your taxes every year for the HRA.
It is wise to note that the HRA might be partially or fully exempt from tax. An HRA tax exemption calculator provides a clear view of the taxable and tax-free amounts. However, if you live in a self-owned property and are not on rent, you cannot claim any tax deductions under Section 10(13A) and Rule 2A of the Income Tax Act 1961.
Using an online HRA calculator is a wise decision if you receive a house rent allowance from your employer. HRA tax exemption can be claimed by a salaried professional under the following three circumstances:
● You are a salaried professional working in a registered public or private firm, and the HRA forms a part of your salary. It is good to note that self-employed professionals or non-professionals cannot claim HRA tax exemptions.
● You live in a rented premises.
● The HRA is more than ten per cent of your gross monthly salary.
An HRA tax exemption calculator lets you analyse the tax you can save every year for paying the rent.
The following are the things to consider before using an HRA exemption calculator:
● HRA tax exemption depends on the city you work and live in. Generally, cities in Slab X are the most expensive, followed by cities in Slab Y and Z.
● HRA allowance is the highest in Tier-1 or Slab X cities. So, if you work and live in Mumbai, Delhi, Chennai, Kolkata, Ahmedabad, etc., the HRA allowance might be as high as 27%. The HRA allowance is typically 18% for tier-2 cities and 9% for tier-3 cities.
● Once you know the percentage of HRA in your salary, you can conveniently use the HRA tax exemption calculator to calculate your tax savings.
The HRA calculation formula is fairly easy to understand. You can claim HRA tax exemption when the allowance is a part of your gross monthly salary. Generally, the tax exemption is the lowest of the three parameters mentioned below:
● The total (actual) rent paid - 10% of the basic salary
● The gross HRA, an employee, gets from their employer
● Depending on the cost of living, between 40% and 50% of the basic salary
Let us understand the HRA calculation formula with an example.
Assume that Mr A lives in a rented apartment in Mumbai, paying a rent of INR 12,000 per month. Mr A’s basic salary is INR 23,000, the HRA is INR 15,000, and the gross salary (including conveyance allowance, dearness allowance, medical allowance, and special allowance) is INR 44,500. Based on the parameters mentioned above, the three figures are as follows:
● The total (actual) rent paid - 10% of the basic salary = INR 9,700
● The gross HRA, an employee, gets from their employer = INR 15,000
● Depending on the cost of living, between 40% and 50% of the basic salary = INR 11,500
Since HRA tax exemption is allowed on the lowest of the three figures, Mr A can claim tax benefits of INR 9,700 in the respective financial year of the assessment.
5paisa provides a simple HRA tax exemption calculator to let you find your deduction amount within seconds. Follow the steps mentioned below to calculate HRA tax exemption:
● Open 5Paisa’s free online HRA calculator
● Enter the basic salary and the HRA amount in the boxes provided
● Enter the rent you paid in a year
● Select the city type (Metro or Non-metro)
● Check the amount you can save every year
Besides providing you with a quick estimate of tax deductions, an online HRA calculator offers the following benefits:
● Error-Free - Since an online HRA calculator uses a preset HRA calculation formula, you can get accurate results within seconds.
● Free to Use - There is no limit to how many times you can use the online HRA calculator since it is freely available on 5Paisa’s official website.
● File Taxes Without Any Worry - Accurate calculations are crucial for filing taxes. Since the HRA calculator provides you with accurate results, you can file taxes like a professional.
Frequently Asked Questions
Yes. You can claim HRA tax exemption by paying rent to your parents. However, your parent(s) must be the legal owner(s) of the property where you live, and they must show the income from rent in their IT returns.
Yes. HRA and home loans are treated differently when computing taxes. So, you can claim home loan tax deductions for constructing or purchasing your house and HRA tax benefits for living in rented accommodation.
Yes. HRA is given to employees living in rented apartments. So, if you live in Mumbai in rented accommodation, you can still claim the HRA tax exemption irrespective of the properties you own in other parts of India.
Yes. It is possible to get both HRA tax exemption and the home loan tax rebate if you can prove that your workplace is far away from your home.
Yes. DA or Dearness Allowance forms a part of your gross monthly salary and is a component of the HRA calculation formula. 5Paisa’s online HRA calculator automatically factors in your DA when calculating the HRA tax benefits.
Disclaimer: The calculator available on the 5paisa website is intended for informational purposes only and is designed to assist you in estimating potential investments. However, it is important to understand that this calculator should not be the sole basis for creating or implementing any investment strategy. 5Paisa does not take responsibility or liability for the accuracy of the figures generated by the calculator. It's also important to remember that the examples given here do not make any claims regarding the performance of any particular asset or investment. Before making any financial decisions based on the results of this calculator, we highly advise every investor to consult with a qualified advisor. View More..