HRA Exemption Calculator
(Delhi, Mumbai, Chennai and Kolkata)
You can claim HRA while tax filing even if you have not submitted rent receipts to your Employer. Still confused, our expers will help you in Claiming the correct HRA by filing correct ITR.
HRA Receieved
50% of Your Basic Salary
Excess of Rent Paid Over 10% of Salary
⇒ The least of the above three is exempt from HRA
Amount of Exempted HRA
HRA Chargeable to Tax
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What is an HRA Calculator?
HRA calculators take account of all the factors that we discuss below like HRA amount monthly, rent paid, basic salaries, and dearness allowance along with the residing city. Now the formula considers the lowest of these three values:
HRA received from your employer
10% of your basic salary is deducted from actual paid rent.
Metropolitan City receives 50% of the basic salary with a dearness allowance and non-metro cities receive 40% of the basic salary with a dearness allowance.
For example, for HRA calculation, if you are getting Rs. 1,56,000 as HRA in metropolitan cities which is 13000 monthly then your basic salary with allowance is 30,000 per month and you pay rent 10,000 per month.
A (HRA) = 1,56,000
B (Rent - 10% basic salary) which is ( 10,000*12)-(10%*30,000*12)= 1,20,000-36,000= 84,000
C (Metro city limit)= 50%*(30,000*12) = 1,80,000
Now the minimum value between A, B, and C is Rs. 84,000 which is the lowest so the maximum HRA you can claim in this particular scenario is here.
HRA Calculation Steps: How HRA Calculator work?
While using the HRA calculator to calculate the HRA exemption amount, it is important to determine several factors related to it. Here’s how it works:
Determine the HRA Amount: The first step is to determine the amount or the percentage through your basic salary. The percentage depends on several factors like the city of residence or the policies of employers. If a person lives in a metropolitan area where the rental cost is high then the HRA percentage of the employee will eventually increase. This is to develop equality in the housing rental allowance. In India, HRA typically ranges from 40% to 50% of the basic salary for employees living in metro cities (Delhi, Mumbai, Kolkata, and Chennai) and 40% for non-metro cities. This percentage can be higher in certain sectors like IT and finance, reflecting the high cost of living in urban areas where these industries are concentrated. So, the hra calculation of metro and nonmetro differs accordingly. The cities termed as metro for HRA calculation are Delhi, Mumbai, Kolkata, and Chennai.
Actual Rent Paid: Another thing that you need to claim for HRA is the actual rent paid. You must have the evidence of rent you are paying for accommodation, it will act as approval of your rent. The rental agreement signed with your landlord can be that evidence. The document must reflect the exact amount you are paying in rent and you can claim it through your HRA. The actual paid rent is the important parameters that determine your claim. Ensure that you use the house rent calculation formula to avoid confusion.
Salary Components: For HRA calculation based on salary, another thing you need to understand is the various components in your salary. Apart from the basic salary you need the basic breakdown of everything included in it. Components like dearness allowance (DA) or other allowances given by your employer play an important role in the calculation.
Exemptions: The tax law provides various exemptions on a certain portion of the HRA received by employees. The accurate HRA calculation and exemption amount depends on several factors and it also includes the actual rent paid plus the city of residence and the amount paid for the rent according to the salary. If an employee is paying more according to the salary then the HRA can increase.
Taxable HRA: When you are completely done with determining the exemption available, you are required to calculate taxable income. The taxable portion of the HRA can easily be calculated by subtracting the exempted amount from the actual HRA received. This taxable amount will later on be included in the taxable income of the year.
Claiming Deductions: Another thing is that if you are not receiving HRA from your employer but you are paying rent you can easily claim a deduction through relevant tax laws. For India, such individuals can easily claim the deduction through the Income Tax Act under Section 80 GG subject to certain conditions.
These are the important steps to ensure that you are complying with tax regulations and calculating the accurate HRA which can maximize the benefit of renting accommodation.
Benefits of House Rent Allowance
HRA may sound like just an allowance but it holds numerous benefits for the taxpayers. Let's discuss what are the key benefits of using a house rent allowance.
Tax saving: One of the biggest advantages of using HRA is the tax exemptions it offers. You can claim HRA exemption through the Income Tax Act to reduce taxable income. It also lowers the tax liability. It is a sustainable tax-saving option that transfers a large amount of hard-earned income to stay in your pocket. You can use the HRA exemption calculator online to understand how much tax you can save.
Financial buffering to housing cost: Housing costs are very high, especially in metropolitan areas and it can eat a significant amount of your salary or monthly budget easily. HRA acts as a financial shield to protect yourself from the burden of rent. That tax exemption helps you to keep your income to yourself and use it for financial well-being.
Choosing your house: Most employers are providing housing benefits that potentially keep your house in a specific location. HRA empowers you to choose your accommodation according to your preferences, proximity to work amenities, neighbourhood, and other related commute options for feasibility.
Encouraging to explore rental options: The rental option for salaried individuals can be limited if the HRA does not provide a compelling financial incentive. It makes renting a more attractive and easy place to start your journey and have a home without any homeownership.
Boost your take-home pay: HRA is like a tax-exempt organ of your salary structure which indicates that you can take high home pay. The disposable income will be kept safe. The financial flexibility to empower you for better management of monthly expenses.
Improving the credit of taxpayers: The individual is taking a high amount of home pay from HRA to increase their creditworthiness with a positive impact. If you have a high disposable income then the loan application will be easily approved. When you have a higher possibility of loan approval then the interest rate is more favourable.
#HRA
Important considerations while filing HRA
HRA has several positive impacts on your tax profile. From reduced taxable income in the form of exemption to increased take-home pay, it offers several benefits. However, it is important to take care of important considerations while using the income tax filing HRA calculator.
Limited exemption: It offers limited exemption with the formula that considers the rent paid, basic salary with allowance, and city type. The minimum amount calculated through this formula is exempted from tax but anything that exceeds the HRA limit becomes part of taxable income. Individuals with handsome salaries might worry because of this.
Documentation: To properly benefit from the HRA calculator monthly and avail exemptions, you should have a lot of documents while filing the income tax return. You need to provide your actual rent expense and HRA from your employer. You need to have an accurate and valid document or else it can get rejected.
Available only for salaried individuals: The HRA benefits are applied only to salaried individuals who are receiving HRA as a part of their compensation package. If a person is self-employed or does not have HRA in their salary structure, they cannot claim the exemption.
What documents are required for claiming HRA?
When claiming House Rent Allowance (HRA) for tax exemption in India, certain documents are required to substantiate the rent payments and ensure compliance with tax laws. These will also be necessary when using the HRA benefit calculator. Here’s a list of commonly required documents:
Rent Receipts: Ensure to have rent receipts for the period for which HRA is claimed. These are the primary documents needed when claiming HRA. If rent payments are more than INR 3,000/month, these receipts are mandatory. They should ideally include:
Names of both the parties (landlord & tenant)
Amount of rent paid & address of rented property.
The period of rent
A revenue stamp, if the payment is made in cash
Rental Agreement: A formal contract between the parties, serving as proof of rental terms, inclusive of details such as:
the monthly rent amount,
the duration of the tenancy,
the deposit amount, and any other conditions agreed upon.
PAN Card of the Landlord: If the annual rent is more than Rs 1,00,000, provide the landlord's PAN card details.
Bank Statements & Utility Bills (optional): These can be helpful, in case there is any discrepancy or inquiry from the tax department.
Conclusion
HRA is a significant element in improving the tax profile by reducing taxable income and tax savings organically. The limitation to the exemption with required documents can make it difficult to apply. HRA can be a valuable tool for tax savings for salaried individuals who pay rent. However, understanding the eligibility criteria, limitations, and documentation requirements is crucial to maximize its benefits. There are various HRA calculators online, however, If you're unsure about your eligibility or have specific questions regarding your situation, it's always recommended to consult a tax advisor for personalized guidance. The tax advisor will guide you to utilize the maximum benefit through various exemptions, not just the HRA exemption.
Frequently Asked Questions
It is always mentioned in the employer-employee contract properly.
HRA is not entirely exempt from tax. The exemption is the minimum of the three amounts as discussed above. This calculation ensures only a portion may be exempt, depending on your rent and salary details.
Rent receipts are instrumental in claiming HRA exemption. If you cannot provide them, especially for high rent payments, your claim might be denied during the tax assessment. In case of electronic payments, bank transactions are sufficient.
Yes. If you have moved from one city to another or from one residence to another due to job requirements or other valid reasons. You must keep the rent receipts and rental agreements for both places as proof of your claims.
If you pay rent but do not receive HRA from your employer, you cannot claim the HRA exemption. However, you may be eligible to claim a deduction under Section 80GG of the Income Tax Act, which is meant for individuals who do not receive HRA but incur rental expenses for their living.