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House Rent Allowance

CALCULATOR

Some components of your salary can be tax exempt without the need of investing in any tax saving instruments. One of them is House Rent Allowance (commonly referred to as HRA) and to find out the amount of HRA which can be exempt from tax, use our calculator.

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HRA Calculator: How to calculate HRA tax exemption
Updated : May 04, 2018, 03.07 PM IST

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No other allowances like special allowance are added into to your salary for computing the tax-exempted HRA amount.
House rent allowance (HRA) is a basic component of your salary. However, most of us are not familiar about the rules that can help us save tax on it. If you are a salaried employee living on rent, then here's how you can use HRA to reduce your tax liability.

Calculation of tax-exempt HRA amount
The amount of HRA received by you from your employer is not fully exempt from tax. The tax-exempt portion of the HRA is actually the minimum of the following:
a) Actual HRA received from employer
b) 50 percent of the 'salary' if the accommodation is in the metro cities (Delhi, Mumbai, Chennai, Kolkata) or else 40 percent for other cities
c) Excess rent paid annually over 10 percent of the annual 'salary'

Here 'salary' means basic salary, dearness allowance (DA) (if it forms part of the retirement benefit) and commission received on the basis of percentage of turnover. No other allowances like special allowance are added into to your salary for computing the tax-exempted HRA amount.

Let us assume that you live in Delhi and pay a monthly rent of Rs 12,000. Your basic salary is Rs 30,000 per month and you get a monthly HRA of Rs 15,000. The tax exempted HRA amount will be the lowest of the following:
HRA-calculation

The lowest amount is mentioned above is Rs 1.08 lakh which will be exempted from the tax. Rest of the amount received will be taxable. Therefore, Rs 72,000 (Rs 1.80 lakh minus Rs 1.08 lakh) will be taxed according to your income slab.

How to claim the benefit
To avoid excess TDS from being deducted from your salary, you will have to provide rent agreement and/or rent receipts to your employer. If your annual rent payment is more than Rs 1 lakh, then you will provide your landlord's PAN, as well, to your employer.

However, even if you have forgotten to submit rent receipts/rent agreement to your employer, then you can claim the benefit at the time of filing of income tax returns. It is advisable to keep proofs of rent paid and rent receipts as the tax department can ask you to provide it to authenticate your claim.

Special cases to claim HRA benefit
  • Rent paid to your parents
If you are staying with your parents and paying rent to them, you will be eligible to claim the tax-exemption on HRA. Experts suggest that it is advisable to have a documental evidence such as rent receipts, financial transactions, rental agreement to avoid rejection of claim by the tax department. There have been instances where the Income Tax department has rejected claims because there was no genuine proof of transactions having taken place.

  • Own a house but staying in a different city
Even if you own a house but are staying in a different city because of your job, then, too, you can claim HRA benefit if you are living in a rented property.

If you are receiving HRA but are staying in our own apartment, then you cannot claim the HRA exemption benefit. The whole HRA amount received will be taxable in your hands.

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