Automated Income Tax House Rent Exemption Calculator U/s 10(13A)


HRA (House Rent Allowance): All you Need to Know

House Rent Allowance, or commonly known as HRA, is an amount that is paid by employers to employees as a part of their salaries. This is basically done as it helps provide employees with

Regulated by the provisions of Section 10(13A) of the IT Act, the house rent allowance serves to be quite beneficial to salaried employees in India.

As per law, only salaried employees can claim HRA and self-employed individuals are exempt from doing the same. HRA, as an exemption is provided, only if the employee is living in rented accommodations. However, also in case the employee lives in his or her own house and does not pay any rent, he or she cannot claim HRA to save on taxes.

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The basis on which HRA is decided

Primarily, HRA is decided based on the salary. However, there are some other factors that also affect HRA, such as the city in which the employee resides. In case the individual resides in a metro city, then he/she is entitled to an HRA equal to 50% of the salary. For cities other than a metro, the entitlement is 40% of the salary.

In order to calculate the HRA, the salary is defined as the sum of the basic salary, dearness allowances, and any other commissions. If an employee does not receive a commission or a dearness allowance, then the HRA will be around 40% – 50% of his/her basic salary.

The actual HRA offered, in all probability, will be the lowest of the following three provisions:

·         The actual rent that is paid should be less than 10% of the basic salary.

·         In case you’re staying in a metro, 50% of the basic salary and 40% if you live in a non-metro city.

·         The actual amount received as the HRA from the employer.

How is HRA Calculated?

HRA or The House Rent Allowance serves as a crucial component of an individual’s salary. It defines the total amount allotted by the employer towards the employee’s accommodation as rent. The amount allotted for HRA proves to be beneficial for an employee as it is calculated for Income Tax benefits associated with HRA are only applicable to those salaried individuals who stay in rental accommodation. If an employee stays in his or her own house, he or she is not eligible to claim the amount for Income Tax benefit is considered from any of the following three listed provisions:

·         The actual rent that is paid should be less than 10% of the basic salary.

·         In case you’re staying in a metro, 50% of the basic salary and 40% if you live in a non-metro city.

·         The actual amount allotted by the employer as the HRA.

The least of the aforementioned amount will be considered for

Example: In order to understand how to calculate HRA for an employee, let us consider an example of Mr. Ajay Sharma. Ajay resides in New Delhi in rented accommodation, paying a rent of Rs. 10,000 per month. Here’s what his payslip looks like-

EMPLOYEE NUMBER- 1008AJAY SHARMAAMOUNTS
Basic30,000PF2000
HRA13,000Professional FreeDownload Automated House Rent Exemption Calculator U/s 10(13A)

 For the purpose of calculating Mr. Ajay’s HRA that is exempt from Income Tax, we have the following information:

·         His basic salary is Rs. 30,000 per month, which will be considered since there is no commission or dearness allowance

·         HRA provided by the company is Rs. 13,000 per month

·         10% of the annual basic salary comes to Rs. 36,000

Now, let’s calculate the same in the following three scenarios:

·         Amount received as HRA from employer = Rs. 13,000 X 12 (months) = Rs. 1,56,000

·         Or, Actual rent paid less 10% of basic = (Rs. 10,000 X 12) – Rs. 36,000 = Rs. 84,000

·         50% of basic salary since he lives in a metro = Rs. 1,80,000

Hence, based on the above calculation, it is evident that the HRA amount, which will be exempt from Income Tax benefits of HRA along with a home loan.

·         In case you stay with your parents, you are eligible to pay rent to your parents and collect a receipt for the HRA claim. However, similar rules don’t allow you to pay rent to your spouse and claim a Income Tax from the rent amount that needs to be declared.

What are the biggest benefits of HRA?

A major benefit of the house rent allowance is that it serves as a medium to reduce the taxable income, which therefore leads to a reduction in the

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