HRA is a component of salary given by employers to help employees cover their rented accomodation expenses.
If you provide proof of rental expenses, you may be exempt from paying taxes for the HRA component of your salary.
The amount of HRA received by the employee is decided by the employer and is a part of the employee’s overall salary.
Limited based on your city: In metro cities (Mumbai, Delhi, Chennai, Kolkata) this limit is 50% of your annual basic salary. In non-metro cities the limit is 40% of your annual basic salary.
To calculate HRA exemption, you need ot consider three factors:
HRA you receive: This is the amount your employer gives you as HRA in your salary.
Actual rent paid: This is the total rent you pay for your house every year (monthly rent multiplied by 12).
HRA exemption is the LOWEST of these three amounts.
Let's say Diya lives in Bangalore and earns a basic salary of Rs 23,000. Her employer gives her an HRA of Rs 15,000 per month. She pays a monthly rent of Rs 12,000.
The three components that she will have to calculate are:
HRA from employer: Rs. 15,000 x 12 months = Rs. 1,80,000 per year.
Actual rent paid: Rs. 12,000 x 12 months = Rs. 1,44,000 per year.
Limit for non-metro city: 40% of Rs. 23,000 x 12 months = Rs. (40/100 * 23,000 * 12) = Rs. 1,10,400 per year.
The lowest amount among these components is Rs 1,10,400 - the city limit.
Diya can claim an HRA exemption of Rs. 1,10,400 and the remaining Rs. 69,600 (Rs. 1,80,000 - Rs. 1,10,400) of her HRA will be added to taxable income.
A HRA Calculator is a quick and easy way to know how much of your HRA is tax-exempt.
Calculating your HRA can be a cumbersome, error-prone process, and so it is best to make use of online HRA calculators.
Online calculators line RazorpayX’s HRA Calculator will ask you for basic information about your salary, rent paid, city of residence and compute your HRA in seconds.
The RazorpayX HRA Calculator is the easiest way to calculate your tax-exempt House Rent Allowance.
Step 1: Fill in your monthly basic salary
Step 2: If you are a central government employee, fill in the amount you receive as dearness allowance.
Step 3: If you live in one of the metro cities, your HRA exemption is calculated at 50%. For a non-metro, it’s 40%.
Step 4: Enter the total amount of HRA received from your employer as part of your salary.
Step 5: Enter the total amount of rent paid monthly.
Your HRA split is calculated automatically by the calculator.
Rent paid to family members:
You can still claim HRA on rent paid to family members as long as you can provide proof of rental payments. You may also need to provide the rental agreement, rental receipts, etc. You can not claim HRA exemption if you own the house.
Rent shared with spouse:
When rent is shared with a spouse, the employee can claim HRA for the amount mentioned on the rental receipts. If you are able to provide proof of payment of each spouse's individual contribution, you may be able to claim HRA for only your individual contributions towards rent. However, it's important to ensure that the rental receipts are legitimate and not duplicated to avoid any complications.
Employees without HRA:
HRA is a benefit provided by employers as part of the employee's salary. It is provided at the discretion of the employer, which means some employees may not receive this benefit. In such cases, you can still claim HRA under Section 80GG of the Income Tax Act after filing Form 10BA.
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