What is HRA and HRA Calculator

Salary employees can use the House Rent Allowance (HRA) deduction to reduce their taxable income.

What is HRA and HRA Calculator

Salary employees can use the House Rent Allowance (HRA) deduction to reduce their taxable income. HRA is paid by employers to employees. Calculating HRA for tax deductible purposes can be very difficult. In order to estimate their deduction amount and prepare their taxes in advance, one might use an HRA calculator.

What is House Rent Allowance?

An essential part of salary structure is the house rent allowance, or HRA for short. It is the sum that the company must pay as a portion of the employee's salary. HRA, is the sum that an employer gives to an employee to cover their stay costs. Employees who use HRA to pay for stay expenses are eligible for tax benefits. Depending on the salary and city of residence, HRA allowance varies.

The provisions of the HRA are governed by Section 10(13A) of the Income Tax Act of 1961. Salaried workers benefit from the HRA's provisions. The main benefit of HRA is that it lowers the overall amount of taxable income. As a result, HRA reductions assist in lowering the amount of tax that the salaried individual must pay.

Both governmental and private sector organizations that pay salaries include an HRA component in their salary CTC breakup.

Self-employed people may also deduct HRA expenses under Section 80GG.

Before calculating the taxable income, the HRA amount is deducted from the total income. The HRA can be calculated based on an individual's salary. The tax-free component of the HRA must be at least one of the following amounts, as specified by income tax regulations:

  1. Actual HRA amount received
  2. 50% of the basic salary if the employee resides in metro cities (Delhi, Mumbai, Kolkata, or Chennai) (or) 40% of the basic salary if residing in non metro cities.
  3. The actual amount of rent paid minus 10% of the basic salary(basic + DA)
  4. If a person pays more than INR 1,00,000 in house rent, they are eligible for the HRA tax exemption. They must submit rental receipts and the property owner's PAN information in order to do this.

Calculation of HRA

Following are the rules applicable to claim HRA:

HRA is limited to 50% of the Basic Salary as per CTC.

Employees are not permitted to claim the entire rent cost. The least of the following constitutes the exemption amount:

  • If the employee lives in a metro cities (Delhi, Mumbai, Kolkata, or Chennai), the actual HRA amount received will be 50% of the basic income; otherwise, it will be 40% of the basic salary.
  • Ten percent of the basic salary (basic plus DA) will be deducted from the actual amount of rent paid

Individuals who also have a home loan are eligible for HRA tax benefits.

If the annual rent exceeds INR 1,00,000, the landlord's PAN card must be provided.

The rent amount that needs to be stated in the event of an NRI landlord must be reduced by 30% tax.

Documents required to claim HRA Tax exemptions:

Rent Receipts paid by the employee and the receipt should include:

  • Date
  • Name of the landlord
  • Name of the tenant
  • PAN card details of the landlord
  • Address of the accommodation
  • Duration of stay
  • Revenue stamp with the landlord’s signature
  • Photocopy of the rental agreement (if required)

For rent paid beyond INR 1,00,000, the employee has to provide the PAN card details can copy of the landlord in order to claim HRA tax exemption.

Also, an employee can pay rent to their father and claim tax exemptions with respect to HRA.

How is the HRA exemption calculated?

One of the most important parts of a person's salary is their HRA. It is the total sum that employers give to workers for housing. The HRA budgeted amount is tax deductible. Calculating HRA becomes crucial as a result.

The city of residency, the amount of rent paid, and the actual HRA received are just a few of the variables included in HRA computation. The HRA will be the least of the amounts shown below.

  1. Actual HRA paid by the employer
  2. 50% of salary for a metro city, and 40% of salary (Basic +DA) in case of a non-metro city. As per Income Tax provisions, only Delhi, Mumbai, Chennai and Kolkata are considered as metro cities in India.
  3. Rent paid in excess of 10% of salary (Basic +DA)

What is an HRA calculator?

A tool that makes it easier to calculate HRA and claim a tax deduction is the house rent allowance calculator. For those who are paid a salary, it quickly performs a complicated computation. Prior to determining the HRA amount, it takes into account the base wage, dearness allowance, HRA received, rent paid, and the city of residence. The inputs needed by the HRA calculator are as follows:

  1. Basic salary: It is the fundamental part of a wage. It is the very first line item on the salary slip's income side. Employees are fully taxed on their Basic.
  2. Dearness Allowance: It is the sum paid to offset the effects of wage inflation. DA is the second line item on the salary slip's income side. In the hands of employees, DA is fully taxed.
  3. HRA received: It represents the actual HRA that an employee receives from their company. It can be seen on the salary slip's income side.
  4. Total rent paid: It is the amount of rent that the employee actually pays.
  5. City of residence: The city of residency becomes crucial for HRA computation. This is so that the HRA can be calculated according to whether the employee lives in a metro area or a non-metro area. The HRA for a metro area is equal to 50% of the wage (Basic + DA). The HRA for a non-metro city is equal to40% of the pay (Basic + DA).

Once the taxpayer inputs the above data in the house rent allowance calculator, the output will be the actual HRA amount that he/she can claim as a deduction.

What are the benefits of using an HRA calculator?

Following are the benefits of using HRA calculator:

Ease of use

All one needs to do to calculate HRA is enter the information. information on their basic pay, HRA, rent, and whether they reside in a metropolis, among other things.

Accurate results

The calculations are precise and assist salaried people in determining the amount that is exempt from tax and the amount that is subject to HRA tax.

Fast computation

The calculator makes it easier to calculate results quickly. Nobody has to be concerned about manually performing the difficult calculations. The calculator helps you save time and work.

Better Planning

One can better plan their income taxes and budgets by computing the HRA exemption and taxable part.

Free to use

The calculator is freely usable and accessible online. Therefore, the calculator is available to everyone who is interested in learning how much of an HRA is free from tax and how much is taxable. The calculator can be used numerous times to compare various income possibilities.

What are the components of a salary slip?

Following are the components that form part of the Income side of the salary statement:

  • Basic Salary
  • Dearness Allowance
  • House Rent Allowance
  • Conveyance Allowance
  • Medical Allowance
  • Special Allowance

Following are the components that form part of the Deduction side of the salary statement:

What are the documents required for claiming HRA?

To claim HRA, one would need the following documents:

  • Rent agreement
  • Rent receipts
  • PAN card of the landlord, if the rent exceeds INR 1 lakh per annum

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