How to Calculate Your HRA Benefit in Minutes?

House Rent Allowance (HRA) is given to all eligible employees to cover their housing costs in a new city. It is a non-taxable part of an employee’s salary. HRA is not the same for each employee. It is based on the salary provided and the place of living. Hence, the employee can claim HRA benefits. HRA is deductible under Section 80C of the Income Tax Act,1961. Read on to find out how you can calculate HRA.

What is an online exemption HRA calculator?

An online HRA exemption calculator has made it easy to calculate the HRA benefit. Online HRA calculators will ask you for your salary breakdown and compute your HRA.

Formula to calculate HRA 

There are a few factors used to calculate HRA. These factors are as follows

• Total salary
• Property rent
• HRA compensation included in your salary
• Residence location (metro/non-metro cities)

There are three ways to calculate HRA.

• HRA = The actual amount paid by your employer as HRA.
• HRA = 10% of the basic pay deducted as the actual rent.
• HRA = DA* + 50% of the annual salary (metro city residents) or DA + 40% of the annual salary (non-metro city residents)

*DA = Dearness allowance

Of the three, the lowest amount can be claimed as HRA relief under Section 10(13A) of the Income Tax Act.

Consider the following example.

Mr Sitaraman works in Chennai and earns a salary of ₹50,000. In Chennai, he lives in a rented house. The rent per month is ₹7,000. He receives HRA from his employer. This HRA benefit is eligible for tax.

Particulars	Amount per month (₹)
Base Pay	30,000
HRA	8,000
DA	8,000
Provident fund	4,000
TOTAL SALARY	50,000

Using the HRA calculation formula, Mr Sitaraman can calculate the following HRA.

Formula 1: The amount of HRA paid by your employer 

= ₹8,000 x 12 = ₹96,000

Formula 2: 10% of the basic pay deducted as the actual rent

Actual Rent = ₹7,000 x 12 = ₹84,000

10% of the Base Pay = ₹30,000 x 12 x 10% =₹36,000

Subtracting both, you get, ₹84,000 – ₹36,000 = ₹48,000

Formula 3: HRA = DA + 50% of the annual salary (metro city residents) or DA + 40% of the annual salary (non-metro city residents)

Chennai is a metro city. Hence, 50% of the basic salary would amount to ₹1,80,000 (50% of ₹3,60,000).

Therefore, HRA = ₹8,000 + ₹1,80,000 = ₹1,88,000.

From the three formulas, the lowest amount is ₹48,000. Therefore, Mr Sitaraman can claim ₹48,000 under section 80C. The remaining ₹48,000 will be taxable as per Mr Sitaraman’s income tax slab.

Online HRA calculator and HRA benefits 

If your employer provides HRA, an online HRA calculator can help you. Following are the steps to use an online HRA calculator: 

• Step 1: Enter the total salary you receive and HRA your employer provides. This is mentioned in the salary slip.
• Step 2: Enter the amount you pay in rent and mention whether you live in a metro city or not.

The HRA calculator will provide you with your taxable amount in minutes.

What is the benefit of using an HRA calculator?

The key benefit of using a credible HRA calculator in India is that it is easy and error-free. It is impossible to make a mistake on the calculator. You can use it as many times as you want. Furthermore, online HRA calculators simplify lengthy calculations. And finally, an HRA calculator can give instant results even if you change the numbers. Manual calculations will take a lot more time.

Eligibility for HRA Relief

Self-employed people cannot avail of the HRA benefit. This tax benefit is available to professionals only for the period when they rent a house. To be eligible for HRA benefits, you must fulfil the below criteria.

• You should be working with an entity which you do not own.
• You must be residing in a rented home and receive HRA from your employer.
• If you own a property in the same city, you are not eligible for the benefit.
• You need to provide a rent slip as proof to claim relief.
• You can claim relief if you live with your parents as long as you can provide rent receipts.

Documents for HRA Exemption Claim

You need the provide the following documents to claim HRA benefits:

• You and your landlord’s identity proof
• Tenure of occupancy
• Rent receipts signed by the owner.
• Copy of the Rental Agreement 

You also need to submit a copy of the landlord’s PAN card if the rent paid is more than ₹1 lakh per annum.

Points to note while ruling out the HRA exemption

• Even though your employer may include HRA in your salary, this does not make you eligible for the exemption. You must live in a rented house to be eligible for tax relief.
• You cannot claim the total amount of your HRA as a tax deduction. The formulas will be used to calculate HRA, and the least of the three amounts will be eligible.
• Mumbai, Delhi, Chennai, and Kolkata are the only cities considered to be metro cities.
• The HRA deduction cannot be used to cover the cost of a spouse’s rent.

Conclusion

There are few legal ways to save money on taxes. Hence a salaried worker should not pass up the chance to take HRA benefits. Be sure to keep all verifiable proofs with you when you claim an exemption. For security’s sake, it is best to send rent money through a bank account rather than hand over cash. The exempted amount is determined based on section 10(13A) of the Income Tax Act.

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