House Rent Allowance (HRA) is a significant tax-saving option for salaried individuals in India. Section 10(13A) of the Income Tax Act provides guidelines on how HRA can be claimed as an exemption. Here’s how to calculate your HRA exemption.
1. Components of HRA Calculation
The HRA exemption is calculated using the following three components:
Actual HRA received: The amount of HRA received from the employer.
Rent paid minus 10% of salary: The actual rent paid reduced by 10% of your basic salary.
50% of salary for metro cities or 40% for non-metro cities: If you reside in a metro city such as Mumbai, Delhi, Chennai, or Kolkata, 50% of your basic salary is considered; for other cities, it is 40%.
2. Calculate HRA Exemption
The exemption amount is the least of the following:
Let’s consider this example to understand the calculation.
Parameter
| Amount (₹)
|
Basic Salary
| 50,000 per month
|
HRA Received
| 20,000 per month
|
Rent Paid
| 18,000 per month
|
10% of Salary
| 5,000 per month
|
50% of Salary (Metro City)
| 25,000 per month
|
Rent Paid - 10% of Salary
| 13,000 per month
|
The least of ₹20,000, ₹13,000, or ₹25,000 is ₹13,000 per month. Hence, this will be considered for the exemption.
3. Use an Income Tax Calculator
An income tax calculator can help you quickly determine your HRA exemption and overall tax liability. Input your salary, HRA, and other relevant details, to calculate the exact tax benefits.
Tax-Saving Options with HRA
HRA is one of the most common tax-saving options for salaried individuals. By properly calculating HRA exemption, you can significantly reduce your taxable salary income. Additionally, using an income tax calculator can help you understand how to optimise your tax savings and make the right decisions in your financial planning.
HRA under Section 10 (13A), as well as several other tax-saving options under the Income Tax Act, are presently available for utilisation by taxpayers opting for the old tax regime.
Important Considerations
PAN of Landlord: If rent exceeds ₹1 lakh per annum, the taxpayer is required to provide the landlord’s PAN.
HRA Claim Without Rent Receipt: Ensure you submit rent receipts to your employer to claim HRA.
HRA can form an important aspect of your income tax filing. Ensure that you know the act and its provisions well, so you may make the best of the same.
Disclaimers:
** Tax exemptions are as per applicable tax laws from time to time.
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