Calculate HRA Tax Exemption
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If you don't receive HRA, you can still claim upto ₹60,000 deduction U/S 80GG
What is an HRA Calculator?
House rent allowance (HRA) is one of the most important parts of anyone's salary. All employers are obligated to include a house rent allowance in order to compensate for the employees' living expenses. However, a little known fact about HRA is that you can actually use it as a tax-saving instrument. The amount of HRA is determined by taking into account several factors, like the employee's city, salary structure, salary, etc. If you are a salaried individual residing in rented accommodation, you can use the Urban Money HRA calculator to calculate your tax liability.
HRA in New Tax Regime
According to the new tax regime, even if HRA is not a part of the employee's salary, they can claim a tax deduction on the rent. In order to claim this benefit, the taxpayer is not required to have their own house in the city where they are living on rent.
Further, if the taxpayer was employed for part of the year, and for the other part they have received HRA as part of the salary, the taxpayer has the right to claim a more beneficial deduction. The taxpayer will be required to choose between the 80GG exemption or HRA exemption. However, the authorities reserve the right to contest this decision.
Tax Benefits of HRA
The House Rent Allowance received by an employee can be used to offset the total tax liability for the year. This tax benefit is only applicable if the taxpayer is living in rented accommodation. If the taxpayer resides in their own home, then the HRA amount is completely taxable.
If you are a self-employed professional or businessman, then you are not eligible to claim this benefit. Only salaried employees who live in a rented accommodation and receive HRA as part of their salary are eligible to claim this deduction.
How to Calculate Exemption on HRA
Let us take a look at the standard formula used to calculate the amount of HRA payable. While calculating the HRA component, salary is considered to be the sum of the basic amount plus Dearness Allowance, and other variable factors.
In order to calculate HRA, the lowest of the below given amounts is considered to be eligible for deduction:
- Actual HRA offered by the employer
- For people living in metropolitan cities: 50% of (Dearness Allowance + Basic Salary)
- For people living in non-metropolitan cities: 40% of (Dearness Allowance + Basic Salary)
- Any rent paid exceeding 10% of the annual salary
For instance, if a person living in a metro city gets a salary of Rs. 5 lakhs per annum, with the HRA component being Rs. 90,000 per annum. Let’s assume the actual rent paid for the year was Rs 1.2 lakhs, then the HRA benefit would be the lowest of:
- HRA received: Rs. 90,000
- 50% of (Dearness Allowance + Basic Salary): Rs 2.5 lakhs
- Any rent paid exceeding 10% of the annual salary: Rs 1.2 lakhs - 50,000 = Rs 70,000
So in this case, the HRA amount eligible for exemption would be Rs. 70,000.
Documents Required to Claim Tax Exemptions on HRA
In order to claim the HRA tax exemption, the taxpayer is required to submit the rent receipts or rent agreement provided by the landlord. If the annual rent paid amounts to over Rs. 1 lakh, you will be required to submit a copy of the property owner's PAN card.
In a bid to tackle the problem of people claiming exemptions with fake rent receipts/rent agreements, the Income Tax authorities have passed new rules and regulations. According to the last Budget announcement, any HRA benefit of over Rs. 50,000 a month will be subject to TDS at the rate of 5%.
How to use the HRA Calculator?
The Urban Money HRA Calculator is actually pretty easy to use. You can use our calculator by following the below given steps:
Step 1: Enter your salary and HRA as per your salary slip.
Step 2: Enter the rent paid during the financial year and state whether you live in a metro or non-metro city.
Benefits of Using the Urban Money HRA Calculator
Using the Urban Money HRA calculator saves you the trouble of having to manually calculate your HRA tax exemption. Given below are some of the benefits of using our powerful AI-backed HRA calculator:
- The calculator is absolutely free to use and always provides accurate results.
- You can easily compute your eligible HRA tax deductions.
- Finally, our clever calculator takes into account various different variables in the HRA computation.
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Frequently Asked Questions (FAQs)
How much of the HRA received is exempt from income tax?
The following slabs apply for HRA tax exemption under the new tax regime:
- 50% of the basic salary for metropolitan cities.
- 40% of the basic salary for non-metropolitan cities.
- The actual HRA received.
Am I eligible to claim HRA exemption if my landlord is an NRI?
Yes, you are eligible for HRA exemption. However, the amount will be subject to 30% TDS.
Which documents do I need to submit for my HRA exemption?
You will be required to pay rent receipts for the rent paid during the financial year. In case you do not have rent receipts, you can also provide financial statements showing that you have made the payments.
Can I claim deductions on both HRA and home loan EMIs?
Yes, according to the latest IT Act amendment, it is possible to make simultaneous tax exemption applications.
Is Dearness Allowance taken into account while calculating HRA?
Yes, the Dearness Allowance is taken into consideration while calculating the HRA. However, you can avoid the trouble of manually calculating the HRA by using the Urban Money HRA calculator.
Can I pay rent to my wife and claim HRA? Are husband and wife both eligible to claim HRA exemption?
Yes, you can pay rent to your spouse or parents and file a claim for HRA tax exemption. The rent paid will be considered as the spouse’s or parent’s income, and will have to be included while filing the ITR. Both you and your spouse are eligible to claim HRA with respect to house rent paid for a financial year. There is no limitation prohibiting you from doing the same.
Is HRA a compensatory allowance?
The HRA is not only a part of your basic salary, but also a compensatory allowance. This is paid to the employee with respect to the charges incurred for accommodation during service period.