What is HRA, How to Calculate HRA as per Income Tax

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What is HRA?

HRA full form is House Rent Allowance. It’s a component of your salary provided by the employer for the expenses incurred towards rented accommodation. You can claim HRA deduction in ITR only if you are residing in a rented house.

HRA exemption is covered u/s 10(13A) along with rule 2(A) of the Income Tax Act, 1961. Keep in mind to check the HRA rules and HRA calculation below.

The HRA exemption is covered IncomeTax Act u/s 10-13(A) and provides for the HRA deduction based on the amount lowest amongst these 3 Rules: 

  • The actual amount of HRA given by the employer
  • Actual rent paid each month, minus 10 % of your salary (salary here means the basic salary, including the commissions and dearness allowance) 
  • 50% of your salary is eligible for the HRA exemption if you live in a Metro city of India or 40% of your salary is HRA exempted if you live in a non-metro city 

Read This:- Income Tax Slab for FY 2020-21 and AY 2021-22

How to Calculate HRA with Example

How to Calculate HRA For Salaried Person

Let’s take one example to understand HRA calculation:

Mr. Sharma, employed in Mumbai (Metro City), lives in a rented house for which he is paying a monthly rent of Rs.15,000/- during the fiscal year 2020-21 (the AY 2021-22). He receives a basic salary of Rs.40,000/- with an HRA of Rs.19,000/- per month from his employer. The HRA deduction from income tax will be as mentioned below in table-

ParticularsHRA Calculation (Rs.)Amount per annum (Rs.)
Actual HRA19000*122,28,000
Actual Rent -10% of Basic Salary16,000*12 – 10% (40,000*12)1,44,000
50% of Basic Salary50% (40,000*12)2,40,000

Out of these, Mr. Sharma will be able to claim an HRA exemption of Rs.1,44,000 as it is the lowest among the amounts mentioned above. You can also try the HRA exemption calculator online on our website to help you with HRA calculation.

How to Calculate House Rent Allowance (HRA) Online:- Online HRA Calculator

How to Calculate HRA For Self Employed Person

If you are a self-employed person, then you, too, can claim HRA deduction and tax exemptions u/s 80GG of the Income Tax Act. This section also applies to those of you who are salaried persons when you do not receive HRA. 

HRA rules u/s 80 GG are as follows:

  • The house rent allowance or HRA exemption is available only to the HUF and the individual person under the Act 
  • Self-employed individuals and salaried people can claim rent deductions only if they do not receive tax exemption under the provisions of Section 10-13A
  • The employee, HUF (Hindu Undivided Family) in which the employee is one of the members, the spouse or the minor child shall not enjoy ownership of any accommodation, where the concerned person is residing or working
  • Those who wish to receive HRA exemption under Section 80 GG should not claim tax benefits related to any other self-occupied property they own elsewhere
  • Under Section 80 GG, those who want to claim HRA deduction should furnish a self-declaration, using the form 10-BA. In this form, the individual will be required to show that he/she duly satisfies all the other abovementioned conditions

HRA Exemption

HRA Exemption When Employer Refuses to Provide Deduction Benefits

Even if your employer refuses to give HRA-related tax benefits, you can claim the same at the time of filing ITR. You will receive the exempted amount as a refund of the surplus TDS as per HRA rules.

HRA Exemption When More Than 1 Family Member Pays Rent

If more than one member of the house is earning, such as you and your spouse, and both are paying the house rent, then the two of you can claim the HRA-related tax deduction by furnishing separate rent payment receipts. However, if there is a single rent paid by anyone of you, then only any one of you can only claim the HRA deduction in such a case.

Documents Required to Claim the HRA Exemption

The following documents are provided by you at the time of claiming HRA deduction:

1. If the rent you paid during a given financial year surpasses Rs.1 Lakh, you will have to provide the PAN card details along with a copy of the PAN of the landlord or property owner

2. The rent receipts, which should include the following details: 

  • Date 
  • Landlord’s name 
  • Renter’s name 
  • PAN card details of the landlord 
  • Address of rented accommodation 
  • Stay duration 
  • A Revenue Stamp, along with the signature of the landlord 

The same receipt can be used for 3 months. Hence, for a year, you require at least the last 4 rent payment receipts while claiming HRA benefits.

3. The photocopy or duplicate copy of the rent agreement, if required.

The house rent can pay by the employee to his or her parents and claim the tax deduction related to the House Rent Allowance (HRA) too.

Conditions for Claiming HRA Exemption

  • Under Section 80 or any other section, the HRA exemption is only provided when you pay the rent to a landlord
  • There is no HRA deduction for the periods when the rent is not paid 
  • When your job location changes (i.e. when you shift from a non-metro to a metro city or vice versa), or there is a change in your salary, the HRA deduction is calculated monthly. Hence, the HRA exemption or deductions may vary for the periods of change separately
  • Apart from your father, if you pay rent to any other family member, HRA and related tax exemptions will be provided by the employer. To claim the HRA deductions, you should pay rent on a regular monthly basis and that too through the bank transfers to help the IT department easily deduce your expenditure

When the House Rent Amount Exceeds Rs.1 lakh

In case you pay a house-rent that surpasses Rs.1 lakh, then, in that case, you can claim HRA exemption towards the same. You will be required to furnish your PAN details of the landlord, along with the various rent receipts while claiming HRA benefits.

Disclaimer:- IT laws are subject to amendments from time to time.

For any query or complaint mail at [email protected]

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