HRA Exemption Calculator
- What is house rent allowance? HRA calculation formula
- How to do HRA calculation? How to calculate HRA in salary
- How to use the HRA exemption calculator
- Exceptions that can impact how to calculate HRA tax exemption
- What if your landlord does not give you a PAN for your HRA claim?
- How to claim house rent allowance exemption when an employer does not offer HRA
- Can I claim HRA exemption if I own the house I live in?
HRA exemption calculator helps you determine how much of the house rent allowance (HRA) in your salary gets exempted from tax. Many employers offer house rent allowance to help employees cushion the rising cost of rental properties. Especially in urban cities where the cost of living is constantly rising, the government established tax exemption policies for employees to access the full benefit of these allowances from their employer.
So, if you work in a big company that offers HRA benefit as part of your salary package, and you want to learn what HRA is or how to take advantage of the tax benefit that comes with it – keep reading! If you're self-employed or working at a company that does not offer HRA – keep reading; you can qualify for the tax benefit too!
In this article, you will learn how to do the HRA calculation, how much HRA can be claimed, the eligibility for the tax deductions, and use the HRA exemption calculator to evaluate your taxable income.
What is house rent allowance? HRA calculation formula
House rent allowance (HRA) is the amount of your salary that your employer pays you to assist with your rent. The government allows you to deduct a portion or the whole amount from your taxable income according to Section 10(13A) of the Income Tax Act.
The rule is straightforward. If you receive salary and HRA is a part of your compensation for house rent expenses and rental commissions, you are entitled to deduct from your taxable income the least amount of the following:
- The actual amount you receive as HRA;
- The actual amount you pay as rent minus 10% of your salary; or
- 40% of your salary (50% of your salary, if your house is situated in an urban or metro city like Mumbai, Calcutta, Delhi, or Madras).
Therefore, the HRA exemption calculator uses the following HRA calculation formula:
How to do HRA calculation? How to calculate HRA in salary
Your salary is the total amount you receive as compensation from your employer. It includes all components of the compensation package such as:
- Basic income.
- Dearness allowance (particularly for government employees and pensioners. Check out the Atal Pension Yojana calculator – It is a percentage of the basic salary paid by the government to offset the impact of inflation.
- The HRA amount or how much HRA can be claimed.
- Any commission-based pay you've earned.
Hence, when doing the HRA benefit calculation for income tax, you must consider the entire package. Below is an example to illustrate how to calculate HRA tax exemption in your salary.
Example 1: How to calculate HRA exemption on salary when an employer offers HRA?
Assuming you earn a basic salary of Rs 30,000 and receive an additional Rs 8,000 as HRA while living in a rented apartment costs you Rs 12,000 every month.
Total salary package = Basic salary + HRA amount
= Rs (30,000 + 8,000) = Rs 38,000
To determine the HRA exemption from your tax liability, we’ll have to deduct the minimum of three amounts:
Rent – 10% of salary:
Rs 12,000 – (10% × Rs 38,000)
= Rs 12,000 – Rs 3,800
= Rs 8,200
40% of salary:
= 40% × Rs 38,000 = Rs 15,200
The minimum of the three amounts is the HRA amount. That means when you are filing your taxes, you can deduct Rs 8,000 from your taxable income. It's easy to find details of your salary package since it's usually stated on your payslip how much of it is your HRA.
How to use the HRA exemption calculator
When using the HRA exemption calculator, you don't have to worry about carrying out this HRA calculation to know how much of your HRA gets exempted from tax. All you have to do is provide the details from your payslip directly into the calculator fields. Fill in:
- Your basic pay;
- The amount you receive as DA;
- How much you receive as HRA;
- How much you pay as rent to your landlord;
- Select from the drop-down options if you live in a metro city or not; and
- The HRA tax exemption calculator will evaluate how much you can claim as exempted HRA and how much left is taxable.
Exceptions that can impact how to calculate HRA tax exemption
The only exception that can stop you from claiming your HRA tax exemption is if you don't pay rent.
That means that if you live in a house that you own or you live with your parents, you cannot deduct your exempted HRA from your taxable income after using the HRA calculator. (But don't worry, you'll learn how to get around this – stay on the page 😉).
Also, if you pay more than a lakh (Rs 1,00,000) as rent per annum (i.e., Rs 8,333 per month), you must provide the Permanent Account Number (PAN) of your landlord to your employer to claim the tax exemption under house rent allowance (HRA).
What if your landlord does not give you a PAN for your HRA claim?
If your landlord does not provide their PAN, they must offer you a declaration of your payment according to circular No. 8/2013 dated 10 October 2013.
And one last spoiler, there is a new tax regime called the Section 115BAC 😬. It comes with its benefits which are different from the current regime's, so you will not get a tax exemption for house rent allowance if you choose to file your income tax with the new tax regime.
You must be thinking, what if my salary package does not include HRA? The good news, you can still claim HRA tax benefits nonetheless.
If you're curious to learn about all the Sections mentioned in this text, you can look them up easily at the Indian Government Income Tax Website.
How to claim house rent allowance exemption when an employer does not offer HRA
If your employer does not offer HRA in your salary package, you can claim the HRA tax exemption from your taxable income if you meet the condition under Section 80GG of the Income Tax Act. People in such a unique situation can deduct the least of the following three amounts:
- 25% of total income, excluding long and short-term capital gains;
- The amount paid as rent minus 10% of salary; or
- Rs 60,000 a year (i.e., Rs 5,000 per month).
Total total income is gross income minus all long-term and short-term capital gains under Section 111A and income under Section 115A or 115D and deductions available under Section 80C to 80U (except tax deduction under Section 80GG) of the Income Tax Act.
It sounds like much legalese are involved here. Still, it's basically deducting from your gross income the unrealized gains or return on investments in stocks, cryptocurrencies, bonds, mutual funds, etc. As long as you've not liquidated these investments in the current financial year when you're claiming your HRA exemption, you can claim tax benefits under this HRA benefit calculation. For a better understanding, you may consider consulting a tax advisor.
Let's consider another example:
Example 2: How to do HRA calculation when an employer does not offer HRA
Let's assume Saanvi does not get any HRA benefit from her employer, but she earned a total annual income of Rs 620,000. She also made a capital gain of Rs 93,000 in the past year from her investments. Her Rent is Rs 120,000 per annum. How do we determine her HRA exemption when she's filing her taxes?
We know that Saanvi's HRA exemption is the least amount of the following:
25% of her adjusted total income:
Gross income = Rs 620,000
Capital gains = Rs 93,000
Adjusted total income = Gross income – Capital gains = Rs (620,000 – 93,000) = Rs 527,000
= 25% × Rs 527,000 = Rs 131,750
Actual rent minus 10% of total income:
Rs 120,000 – (10% × 620,000)
= Rs 120,000 – Rs 62,000
= Rs 58,000
Standard limit per annum: Rs. 60,000 per annum or Rs 5,000 per month
The least amount is the rent minus 10% of Saanvi's annual salary from the house rent allowance calculations. Therefore, Saanvi can claim a tax deduction of Rs 58,000 against her annual rent expense of Rs 120,000.
Can I claim HRA exemption if I own the house I live in?
Short answer, no. If you own the house you're living in, you cannot claim HRA exemption because you can't pay rent to yourself.
You may be thinking about letting out the house and staying in rented accommodation so you can pay rent and claim HRA. Well, you should make sure you consult a tax advisor in that case because you need to provide a valid reason to the Income Tax Department for not staying in your house. If the home is located in a city different from where you work, no problem. You can claim deduction on your HRA under Section 10(13A).
Suppose your house is not entirely paid for because you have an active home loan. In that case, you can claim tax deductions for principal payment under Section 80C and interest deduction under Section 24 of the tax act, along with HRA exemption. Therefore, you may continue to claim HRA along with the home loan interest deduction until you've paid off your mortgage. However, if you're claiming HRA benefits under Section 80GG, you cannot claim tax benefits for a property you own in another city.
How do I claim HRA when I live with my parents?
It's pretty simple: Pay rent.
If you're not a co-owner of the house, you can claim the HRA exemption if you enter into a formal agreement with your parent and pay rent to them. Your parents will need to report the money in their income tax returns, but they will not be taxed as retired senior citizens. That way, you will also be saving money on the family's overall tax liability.
What information do I need to provide to claim HRA tax exemption?
Some of the information you'll require to claim your HRA tax exemption under the Section 10(13A) or Section 88GG deductions are:
- Your name as a tenant;
- Your Personal Account Number (PAN);
- Your house address;
- Your rent paid;
- Mode of payment;
- Personal Account Number (PAN) of your landlord if rent is over Rs 1 lakh per annum;
- Copy of rent agreement; and
- Rent receipts.
What is the maximum amount of HRA I can claim as a tax exemption?
The maximum HRA you can claim as the tax exemption is the HRA amount in your salary package. Therefore, if your employer provides Rs 10,000 as HRA per month, you cannot claim more than Rs 10,000 as a tax deduction.
What if I missed claiming my HRA tax benefit?
It's not too late if you missed submitting your rent details to your employer as proof to claim HRA tax deductions at the end of the month. You can do it when filing your income tax return, provided you have all your rent receipts and the rent agreement. Should you also miss claiming HRA while filing your income tax returns, you can file a revised return before the end of the financial year and claim your tax benefits. Thus, you can use this tool as an HRA arrears calculator.