Complete guide on how to calculate HRA

HRA is one of the most important factors to consider for your salary. HRA stands for House Rent allowance. It is taxable under the Income Tax Act. Every employer is responsible for providing HRA to their employees. If you are a salaried employee, you can claim HRA. 

The house rent allowance helps to meet all your accommodation-related expenses. It is the amount your employer will provide the employees with the cost they need for a rented property. If you are eligible for HRA, you can reduce the tax liability. The allowance may vary depending on your city, as it helps cover the cost of living in that particular city. 

What is HRA? 

HRA stands for House rent allowance. The employer provides employees HRA to cover the house rental expenses that the latter needs to pay. It is an integral part of the salary slip of the employee. 

The allowance is taxed depending on different factors. If the employee needs to pay rent of more than Rs 1,00,000 annually, they will need to provide the PAN number while filing for the returns. If any employee pays the rental expense but does not get the HRA from the employer, they can claim it under Section 80GG of the Income Tax Act, 1961. This is also valid for self-employed individuals who do not receive salaried income but are paying rental expenses. 

What is an HRA Tax Exemption?

As per the Income Tax Act of 1961, the HRA is exempt from the taxation of the employee. The rest of the amount will still be taxable. Certain criteria are met to understand how much allowance for house rent will be deducted from the salary. It is essential to calculate the deductions of income tax calculation. However, the HRA online can play an important part in making the right choice. 

A salaried employee will not be able to claim HRA if they live in a house of their own. The main purpose of allowance for house rent in the salary is to cover rented properties and not for properties you own. 

Compared to the old regime, significant changes have been brought to the new regime. As per the new regime, there won’t be certain exemptions that existed in the old regime. You need to file for the deductions properly. If you need help with filing for the allowance, you can get in touch with professionals. The accountants and financial experts are well aware of HRA deductions and can help you make the right choice in filing. 

How is the HRA Calculated?

The House Rent Allowance, as stated above, is a major part of your salary. Certain factors will be considered while calculating HRA. Some of the major factors that will form to be an important part of the HRA include the following:

• Salary: The Dearness Allowance and Special Allowances of your salary will be important in determining how much HRA you can get from your salary. 
• Rent paid: The rent you pay for living in the expense is one of the main factors to consider for HRA online claims. You can only claim the HRA if you have sufficient proof. You will need the bank statement, rent receipts, and lease agreements to provide that the rent is being paid every month from time to time. 
• HRA from Employer: How much HRA does your employer provide you? You will only be able to make claims if you’re familiar with these factors.
• Residence: The place of residence will have a huge impact on HRA. Anyone living in a metropolitan city should have an HRA of at most 50% of the basic salary. For the ones living in a non-metropolitan city, the limit is around 40% of the basic salary. 

Can I Claim Hra If I’m Also Claiming Home Loan Deductions?

You must know the eligibility requirements if you consider claiming home loan deductions on your tax return. If you meet the requirements, you can claim HRA and home loan deductions on the same tax return if it’s an eligible deduction. Here’s a guide to calculating your HRA deduction:

HRA Exemption

You may be eligible for the HRA exemption if you’re an Indian employee contributing towards your income tax liability. This exemption is a provision in the Indian Income Tax Act that allows employees to contribute up to Rs 2 lakh towards their income tax liability. To qualify for the exemption, the employee must earn more than Rs 6,000 per month and have been with the company for at least six months out of the past 12 months. If you need help calculating your HRA eligibility, don’t hesitate to reach out to us. 

HRA Exemption When Employer Refuses to Provide Deduction Benefits

If your employer refuses to provide deduction benefits, it is easy to calculate your own HRA. This can be done by using a calculator or online calculators available online. The amount you get back will depend on the type of employee you are and the size of your employer. Be sure to speak to an accountant if you have any questions about calculating your HRA exemption.

HRA Exemption When More Than 1 Family Member Pays Rent

If you are the only one paying rent in your house, you are exempt from having to pay HRA. This exemption also applies if more than one family member pays rent for part of the year – they will be considered tenants and, therefore, liable to pay HRA.

Make sure to keep all official documents, such as leases, receipts, etcetera, to prove this exemption is applicable. If you still need official documents, you can claim an exemption by proving that the other family members are not occupying the property full-time.

 Conclusion

In this comprehensive guide, we have explained everything you need to know about the HRA exemption. From the meaning of the exemption to the various ways to save tax using the HRA, you will be adequately equipped to claim your exemption and save tax as required. You can schedule an appointment with Piramal Finance professionals to clarify any doubts.