written by Khatabook | July 16, 2021

HRA Calculation - How to Calculate HRA Online?

The House Rent Allowance (HRA) is a portion of a salary to help with the rental costs of housing. Along with the basic salary, your compensation is made up of various parts. HRA, or House Rent Allowance, is an example of a payment that your company may pay you. While HRA can certainly help you save money on rent, it can also help you qualify for a few tax breaks. In addition, the HRA you receive cannot exceed 50% of your pay.

HRA in the New Tax System

The government recently introduced a new tax structure for tax-paying individuals. When compared to the previous system, the new one is a lot different. However, one of the most significant differences is that the new system will not include several of the previous tax regime's exclusions or deductions. 

The HRA (House Rent Allowance) and HRA calculation in income tax are one of them. As a result, if you choose the new tax system and file your taxes, you will not be able to take advantage of the HRA deduction. Find all about the HRA calculation for FY 2020-21 by reading further.

What Factors Determine HRA?

Your salary amount decides your HRA. The tax-free portion of the HRA Rules (House Rent Allowance) is the least of the following amounts:

  • Actual HRA received.
  • If one lives in metropolitan cities such as Delhi, Kolkata, Chennai, Mumbai or Bangalore among others, 50% of basic salary; if one lives in any other city, 40% of basic salary.
  • Actual rent paid minus 10% of the basic salary.

Documents Needed to Claim HRA Tax Exemption

Rental agreements and Rent receipts are the most important documents to give when requesting a tax exemption for HRA in salary. Even if you pay rent to your parents, you will be entitled to this exemption as a taxpayer.

To get a tax exemption on HRA, you'll need to submit your rent receipts. In cases where the annual rent of the house exceeds Rs 1,00,000, you must also submit the owner’s PAN. If the owner does not have a PAN card, they can offer a self-declaration with the same information.

How To Calculate HRA Exemption?

1. If you're a salaried employee,

  1. The HRA exemption calculator 2019-20 or HRA exemption calculator 2020-21 will be one of the ideal options to reduce the amount of money you pay in taxes.
  2. According to Section 10-13A of the Income Tax Act (ITA), you can claim the lowest amount of the three options below as part of your House Rent Allowance (HRA) tax deduction:
    1. The actual rent paid less ten percent of the salary(salary or employee compensation is a broad phrase that includes dearness allowance (DA), basic salary, and any commissions)
    2. Actual House Rent Allowance (HRA) amount offered by the company
    3. 50% of the salary when residing in Mumbai, Delhi, Chennai, or Kolkata and 40% of the salary if you live in a different city

2. If you're self-employed and don't receive HRA

  1. Do not be concerned if you’re a self-employed professional or if your compensation does not include House Rent Allowance (HRA) 
  2. You can still claim House Rent Allowance (HRA) exemption if you pay rent. Income Tax Act of 1961 - Section 80 GG allows salaried and self-employed salaried employees who do not receive HRA to claim exemptions for rental housing.
  3. You can claim the lowest of the following:
    1. Actual rent paid after subtracting 10% of total annual income
    2. 25% of total annual income
    3. As per the HRA exemption rule, Rs. 5000 per month

3. If you wish to deduct the interest on your house loan,

  1. You can work and live in one location while building your own home in a different city. In this instance, you have the option of deducting house loan interest and claiming House Rent Allowance (HRA) exemption. Not just that, but you could also deduct the principal amount you pay on your house loan.

How is HRA taxed?

If you live in a home that you own or do not pay rent for the property you stay in, the amount of HRA you receive will be completely taxable. Individuals who live in a rented house, on the other hand, can claim tax exemption.

If you are an employee paying rent, The Income Tax Act of 1961 - Section 10 (13A) exempts a portion of the House Rent Allowance (HRA) from taxation. Therefore, you can deduct this amount from your earnings and file your taxes.

HRA Calculation Example

Person A and Person B are employed in one organisation. Person A lives in a rented house. On the other hand, Person B lives in his own home in the city where he works. Both receive a House Rent Allowance (HRA) of Rs 10,000 every month. This amount comes to a total of Rs 1,20,000 per year.

Person A is eligible for the deductions from their House Rent Allowance (HRA) amount. The HRA of Rs 1,20,000 received by Person B is fully taxable. Person A can use an online House Rent Allowance (HRA) calculator to know the HRA exemption calculation.

What Is A House Rent Allowance (HRA) Calculator? How To Calculate HRA?

The cost of living in most of the Indian cities has risen dramatically in the previous decade. Apart from inflation, this is mainly due to a rise in incomes. Many companies offer an HRA to employees who live in rented housing to ensure their well-being. The HRA calculator formula can assist you in determining the amount of allowance you receive and the HRA percentage of basic salary in India.

Also Read: Salary Calculator 2020-21 - Take Home Salary Calculator India

What Are the Advantages of a House Rent Allowance (HRA) Calculator?

Those who receive an HRA from their job will benefit significantly from using an online HRA calculation.

The calculation of HRA or how HRA is calculated can help you figure out the amount of tax you'll have to pay on your House Rent Allowance (HRA). Following are a few benefits:

  • The calculator is error-free.
  • You can utilise it as many times as you like, and the computations can be used to seek tax exemptions.
  • The calculator handles all of the factors during the HRA computation.
  • You can claim House Rent Allowance (HRA) based on the calculated amounts depending on where you live. ‘Slab X’ cities are, comparably, more expensive to live in, but ‘Slab Y’ and ‘Slab Z’ cities are less expensive.
  • Use the HRA exemption calculator to figure out the amount of tax you'll have to pay in a given year.
  • HRA slabs differ depending on where you stay. Suppose you live in New Delhi, Calcutta, Mumbai, Ahmedabad, or Chennai, for example. In that case, your House Rent Allowance (HRA) allowance may increase to 27 per cent. However, for tier-3 and tier-2 cities, the percentages may drop to 9% and 18%, respectively.
  • Using the HRA calculator, you can simply prepare for the future based on the percentage of your pay that is HRA.

How Do I Use an HRA Calculator?

Using an HRA calculator is simple, once you understand the steps below:

Step 1: Enter your HRA and basic salary as indicated on your pay stub.

Step 2: Enter the rent paid and select whether or not you live in a city classified as metro from the drop-down menu.

Here is an example of calculation of HRA:

Employees can save money on taxes by using the House Rent Allowance (HRA) for income tax.

Also Read: Special Allowances in India- Taxation and Calculation 

Conclusion

We have discussed the calculation of HRA and the HRA exemption calculation in this article. We have also shown an HRA calculation example and hope this clears all your doubts about HRA calculations and online HRA calculators. 

FAQs

1. I forgot to turn in my rent receipts to my boss. What is the procedure for claiming the HRA tax advantage now?

According to this instance, you can claim the House Rent Allowance (HRA) tax benefit when you file your income tax returns. Keep your evidence of rent payment available, as you may be required to present these documents to the Income Tax Department to verify your claim. 

2. Is it possible to seek a tax exemption on HRA?

No, not everyone is eligible for a tax exemption on HRA. Even though included in most employees' salaries, the exemption is only available to those who pay rent. Self-employed people are also not eligible for the HRA exemption.

3. Is it possible to have a tax break on HRA and a deduction for house loan interest at the same time?

Yes, this is a possibility. You could be renting a home in one city while owning a home in another (for which you are repaying a home loan).

4. Can I use the HRA tax exemption to pay a family member's rent?

If you pay rent to your parents, you can claim a tax exemption on HRA. You should, however, have enough paperwork to serve as verification of this transaction.

5. Although House Rent Allowance (HRA) is not included in my paycheck, I live in rental housing. Is there any way to get a tax break?

If a person pays rent for an unfurnished or furnished house, they can deduct the rent paid (under Section 80 (GG) of the Income Tax Act). For this, they should submit Form 10B.

6. Can the maintenance fees I pay for my apartment be used to qualify for HRA tax relief?

No, HRA exemption is only available for rent paid. You won't be able to deduct maintenance or electricity costs from your taxes. These fees are also not taken into account when calculating the landlord's income tax.

7. Is it possible to get a tax rebate and a tax exemption on my home loan?

You can, usually, claim a tax deduction on both HRA and home loan payments. For example, you may have rented a house in another city while repaying a home loan in another town. You can get a tax break on House Rent Allowance (HRA) for the rent during this situation. You can also deduct your home loan repayments from your taxes.

8. Is it possible to claim a tax exemption for anyone?

Not everyone is eligible for HRA. It is only available to salaried people who have to pay rent. In addition, the HRA exemption does not apply to self-employed individuals.

9. My house is in the process of being built, so I've rented another place in the same city. Can I claim HRA exemption?

If your house is being built and you are renting it, you are eligible for the HRA exemption.

10. What proof do I need that I've paid my rent?

Receipts for rent paid in the previous fiscal year are acceptable. If you don't have the receipts, you'll need to provide financial papers to verify that you've paid your rent.

12. Can I receive HRA tax relief if my landlord is a non-resident?

Yes, but just 30% TDS is applicable. 

 

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