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What is HRA and How HRA Exemption is Calculated? – Kotak Life

  • 16th Dec 2019
  • 3,580
What is HRA and How HRA Exemption is Calculated? – Kotak Life

HRA or House Rent Allowance is received by many salaried people which is included in their pay. But did you know that you could exempt HRA from taxes if you live in a rented place? Under Section 80GG, you can claim for HRA exemption if you are salaried or self-employed. So, let’s understand what House Rent Allowance is, how you can calculate it, and some commonly asked questions.

What is HRA?

House Rent Allowance is given by your employer as an allowance for your rented accommodation. You can claim this income tax deduction even if you are employer doesn’t pay you any HRA or if you are self-employed. But the catch is that you should be living in a rented accommodation to exempt HRA from tax deductions. Someone who has a place of their own and gets HRA by their employer cannot reap the benefits of claiming tax deductions under Section 80GG.

How is House Rent Allowance Determined?

House Rent Allowance is determined based on certain factors like the city of residence and your salary. If you live in a metropolitan city then your HRA is equivalent to 50% of your basic salary. In any other city, your HRA should be equal to 40% of your basic salary. The amount you get paid is a sum of basic salary, dearness allowance and other payments. If you do not get paid any dearness allowance or commissions, the HRA you should get is equivalent to 40% - 50%.

HRA Calculation

Your HRA can be estimated from the below-given factors:

The actual rent paid minus 10% of your basic salary

1. The actual amount of HRA given to you

2. 50% of your basic salary (for a metropolitan city)

The minimum figure out of these three is the HRA that you can claim for tax deductions.

How to Calculate HRA?

Let’s take an example of a salaried individual named Seema Bhat who resides in Mumbai. She lives in a rented apartment and pays a rent of Rs. 10,000 which totals to Rs. 1.2 lakhs annually. Given below is her monthly earning:

Basic Salary Rs. 30,000
HRA Rs. 13,000
Conveyance Rs. 2000
Special Allowance Rs. 3000
Medical Rs. 1250
Leave Travel Allowance (LTA) Rs. 5000
Total Rs. 54,250

A professional tax of Rs. 200 and Provident Fund of Rs. 2000 is deducted from her salary every month.

Let’s calculate Seema Bhat’s HRA that she can claim from the salary based on the three factors we had discussed before:

1. Actual rent paid annually minus 10% of your basic salary = (Rs. 10,000 x 12) - Rs. 36,000 = Rs. 84,000

2. Actual HRA given by the employer annually = Rs. 13,000 x 12 = Rs. 1,56,000

3. 50% of your basic salary (annually) = Rs, 1,80,000

The least figure of the three is the HRA deduction that can be claimed for tax exemption which is Rs. 84,000 in Seema’s case.

Things to Keep in Mind about HRA Deductions

Here are some things you need to keep in mind about HRA tax exemption: claim. If you are paying rent to your spouse, you cannot claim HRA tax
exemption.

1. HRA exemption in income tax can be availed even if you have taken a home loan

2. House Rent Allowance can also be claimed by you if you stay with your parents by paying rent to them and getting a receipt for the

3. Submitting PAN details of your landlord is mandatory if rent paid by you annually exceeds Rs. 1 lakh.

4. In case of an NRI landlord, a TDS (Tax Deducted at Source) of 30% has to be deducted from the rent before paying it.

FAQs on HRA

1. What is an HRA calculator?

An HRA calculator is an online tool that you can use to calculate your HRA that can be tax exempted. The calculator asks for your salary details to help calculate the amount that can be claimed for a tax deduction.

2. What documents are required to be submitted for HRA tax exemption?

You have to submit your rent receipt to claim tax exemption. But there are other additional documents you need to keep handy to submit as proof. Documents such as lease and license agreement, water bill, electricity bill, a letter sent to intimate the cooperative society about the tenancy, etc.

3. Can I avail HRA tax benefit if my landlord doesn’t give me his PAN details?

Yes, you can claim HRA tax deductions without the landlord’s PAN details but you need to keep a record of other documents like lease and license agreement, water bill, letter intimating the society of occupancy, and electricity bill in case of an enquiry. Also, you should make sure you pay your rent through banking channels for proof.

4. Can both spouses claim HRA tax benefit individually?

Yes, both you and your spouse can claim for HRA exemption individually if both of you pay rent. You can do this by getting separate rent receipts from the
landlord. Make sure there is no duplication of rent to avoid tax being deducted twice from the landlord’s income.

5. How can I claim HRA which is not accounted for by my employer?

If your employer has not considered the HRA leading to an increase in the taxable income, you can claim it while filing your Income Tax Returns (ITR). This will allow you to get a refund of the excess amount of tax deducted from your salary.

6.How to claim HRA exemption if I am self-employed?

You can claim HRA exemption by filing Form 10BA which will contain the details of your rent payment. The amount you can claim as a self-employed person is the minimum value of the following:

a.Rent paid more than 10% of the total Income

b. 25% of the total Income

c. Rs. 5,000 per month

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