HRA Calculation

Post-2013, for employees earning more than 1 lakh per annum, the landlord’s PAN details need to be provided by the employee in order to avail HRA exemption. When an employee claims HRA without submitting the required documents and the declaration, he/she becomes ineligible for tax exemption and the amount of HRA is included in the individual’s income and the income tax slab is revised accordingly.

HRA or house rental allowance is the amount paid by the salaried/ self-employed individuals for renting an accomodation. Tax exemption due to HRA for salaried taxpayers is calculated under section 10(13A) of income tax act and for self-employed individuals, the tax deductions based on HRA are calculated based on section 80GG of Income Tax Act.

Documents required to claim HRA Exemption

• PAN card details of the landlord, in case the rent paid, is greater than 1 lac

• Photocopy of rent agreement

• Rent receipt

How is House Rental Allowance Calculated?

The exemption in tax from HRA is calculated as the least of:

• Actual HRA received

• 50% of basic salary+DA, for the people residing in metro cities and 40% of basic salary+DA for non-residents of metro cities

• Excess of rent paid annually is more than 10% of the salary

Here’s an example to understand how HRA is calculated

Rules for Claiming HRA

If you wish to claim HRA, the following rules are applicable:

• The claimed HRA amount should not exceed 50% of the basic salary that you're receiving

• The full rental amount that you are paying cannot be claimed as HRA. The exemption in tax from HRA is calculated as the least of:

Actual HRA received

50% of basic salary+DA, for the people residing in metro cities and 40% of basic salary+DA for non-residents of metro cities

Excess of rent paid annually is more than 10% of the salary

• You can claim for HRA even if you're staying with your parents

• You can take advantage of the tax benefits of House Rental Allowance even if you've applied for a home loan

• A self-declaration has to be provided by the landlord if the rent paid by you exceed Rs. 1,00,000 annually.

• 30% tax has to be deducted from the rent amount if your landlord is an NRI

What are the benefits of HRA?

It reduces the total taxable income, which ultimately reduces the amount of tax that a person is liable to pay to the Income Tax Department