What Is HRA?
HRA is an allowance employers provide to employees to meet their rental expenses if they live in rented accommodation. The purpose of the HRA is to assist employees in coping with the rising cost of living, particularly in cities where housing prices have increased significantly.
The HRA amount is usually a percentage of the employee's basic salary and is paid as a part of their CTC (Cost to the Company). The actual percentage may vary depending on the organisation's policies, but generally, it is around 40-50% of the basic salary. The HRA received by employees is partially or fully exempt from income tax, subject to certain conditions.
How Is HRA Exemption Calculated?
While calculating the HRA, you need to consider several factors as follows:
- Determine the HRA received: Check your pay slip or employment contract to find the exact amount of HRA received from your employer.
- Determine the rent paid: Calculate your total rent for the accommodation in a financial year (April to March).
The HRA exemption is calculated as per 2A of the Income Tax, which states that the least of the following is exempted from salary under Section 10(13A).
- Actual HRA received from the employer.
- 50% of your basic salary (if living in metro cities like Mumbai, Delhi, Chennai, Kolkata) or 40% of your basic salary (for non-metro cities).
- Actual rent paid minus 10% of the (Basic salary + Dearness Allowance)
The formula for HRA calculation is:
HRA Exemption = Minimum of (A, B, C)
After calculating the HRA exemption, the remaining HRA, i.e., HRA received - HRA exemption is added to your taxable income and is subject to income tax as per the tax slab you fall under.
Let us consider an example to understand this better. Suppose Mr Ram is living in Bangalore and is paying a rent of ₹15,000 per month. Here is Ram’s pay slip:
|Salary Components||Total Amount (Monthly)|
Adding all the salary components, Ram’s monthly salary is ₹78,700.
- Monthly Basic Salary: ₹50,000
- Monthly HRA received from the employer: ₹20,000
- Monthly Rent Paid: ₹15,000
- Living in a metro city - Bangalore
Step 1: Calculate the annual HRA received:
HRA received per month: ₹20,000
Annual HRA received: ₹20,000 * 12 = ₹2,40,000
Step 2: Calculate the total annual rent paid:
Monthly Rent Paid: ₹15,000
Annual Rent Paid: ₹15,000 * 12 = ₹1,80,000
Step 3: Determine the HRA exemption:
Actual HRA received from the employer: ₹2,40,000
50% of Basic Salary (since living in a metro city): 50% of ₹50,000 * 12 = ₹3,00,000
Actual Rent Paid minus 10% of Basic Salary: (₹1,80,000 - (10% of ₹50,000 * 12)) = ₹1,30,000
HRA Exemption = Minimum of (a, b, c) = Minimum of (₹2,40,000, ₹3,00,000, ₹1,30,000) = ₹1,30,000
Step 4: Calculate the taxable HRA:
Taxable HRA = Annual HRA received - HRA Exemption = ₹2,40,000 - ₹1,30,000 = ₹1,10,000
In this example, the taxable HRA of ₹1,10,000 will be added to Ram’s taxable income while filing their income tax return. Ram can claim an HRA exemption of ₹1,30,000, and the remaining HRA of ₹1,10,000 will be subject to income tax as per the applicable tax slab.
However, manual calculations are prone to errors and are time-consuming. This is where an online HRA calculator comes to your rescue.
What Is the HRA Calculator?
An HRA calculator is used to determine the amount of HRA you are eligible for. The calculator takes into account various factors such as the employee's basic salary, the actual rent paid by them, and the city category or HRA slab in which they reside.
How Can an HRA Calculator Help You?
The online HRA calculator eliminates the scope for errors and saves time in calculating the HRA. You just have to enter the basic details of your salary and determine the taxable HRA and exempted HRA in less than a minute.
How To Use the Angel One HRA Calculator?
Using an online HRA calculator on Angel One is typically a simple and straightforward process. Here are the steps to follow:
- Open the HRA Calculator on Angel One
- Enter your annual basic salary, Dearness Allowance, and HRA you get as per your salary slip
- Enter the actual rent paid for the entire financial year and specify whether you live in a metro city.
That’s it! The HRA Calculator on Angel One will determine the exempted HRA and Taxable HRA in seconds.
Let us consider an example to understand the usage of the HRA calculator better. Suppose you live in Mumbai and your basic annual salary is ₹2,70,000, your HRA received is ₹1,00,000, there is no dearness allowance, and the rent paid in the financial year is ₹1,20,000. Enter the same details in the online calculator.
The calculator computes the values and determines that the exempted HRA is ₹93,000 and the taxable HRA is ₹7,000.
Benefits of Angel One HRA Calculator
An HRA calculator can help individuals receive a housing rental allowance in several ways:
- Accurate and time-saving: Angel One’s online HRA calculator is designed to provide accurate calculations based on the inputted information. It uses predefined formulas and algorithms to ensure precise results, minimising the chances of human error in manual calculations. Additionally, calculating HRA manually can be time-consuming, especially when considering different slabs and conditions. The online HRA calculator on Angel One automates the process, allowing for quick and efficient calculations.
- Comparison and planning: HRA calculator offers the ability to compare different scenarios. By adjusting the input parameters such as basic salary, rent, or city category, you can see how the HRA exemption amount changes. This helps in planning and optimising your HRA benefits based on various factors.
- Compliance with regulations: HRA calculations involve considering specific rules and slabs based on city categories and conditions. Online HRA calculators are typically designed to adhere to the prevailing tax regulations and guidelines. By using Angel One’s calculator, you can ensure that your calculations align with the applicable rules, ensuring compliance while maximising your HRA benefits.
- Calculate HRA exemption: The calculator enables individuals to determine the amount of HRA exemption they can claim for income tax purposes. By inputting their salary, actual rent paid, and other necessary information, the calculator computes the eligible HRA exemption based on the specified conditions. This helps individuals understand how much of their HRA is taxable and how much can be claimed as an exemption.
- Assess tax liability: The calculator helps individuals evaluate their tax liability associated with the HRA. By considering the eligible HRA exemption and other income details, the calculator determines the taxable income, thereby helping individuals plan and prepare for their tax payments.
- Consider city-specific slabs: The HRA slabs vary depending on the city category or classification. The calculator takes into account the city an individual resides in and applies the relevant HRA slab percentages. It mainly depends on whether you live in a metro city or not. This ensures that the calculation is accurate and aligned with the specific city's cost of living and urbanisation level.
- Tax planning: Based on the quantum of salary allocated as HRA, individuals can utilise the calculator to plan their taxes. They can evaluate the impact of changes in salary or rent on their HRA exemption and tax liability, allowing for better tax planning and decision-making.
By utilising an HRA calculator, individuals can gain a clear understanding of their HRA exemption and tax liability and plan their finances accordingly. It simplifies the process of evaluating the impact of HRA on their overall income and aids in optimising tax savings while ensuring compliance with the applicable regulations and slabs specific to their city.
Documents Required for HRA Exemption Claim
- Copy of your PAN card
- Copy of your landlord’s PAN card
- Copy of rental agreement
- Copy of rent receipts for the financial year
Points To Keep in Mind While Claiming HRA Tax Exemption
- Mandatory PAN requirement: If the rental expenses paid by an employee exceed ₹1,00,000 annually, it is mandatory for the employee to provide the PAN number of the landlord while filing income tax returns. This requirement is in place to ensure proper verification and transparency of rental payments.
- Claiming rental expenses under Section 80GG: Even if an employee does not receive HRA allowance as a part of their salary, or if they are not a salaried individual but still incur rental expenses, they can potentially claim the benefit of paying rental expenses under Section 80GG of the Income Tax Act, 1961.
An online HRA calculator is designed to provide accurate calculations based on the information provided. However, it's important to note that the calculator's results are estimates and should be cross-checked with applicable tax guidelines and regulations.
The results generated by an HRA calculator are for informational purposes and serve as a guide. They are not legally binding. The actual tax treatment and exemptions may vary based on the applicable tax laws and regulations in your country.
HRA calculators are generally designed for salaried individuals who receive an HRA as part of their salary. Self-employed individuals may not be eligible for HRA exemptions. However, they may have other provisions and deductions available to them, depending on the tax laws of their country.
Yes, you can claim HRA by paying rent to your parents, provided they are the actual owners of the property and have a valid rental agreement with you. Also, your parents must declare the rental income in their tax returns as well.
If you forgot to submit the rent receipts to your employer for HRA exemption, you can still claim the benefit while filing your income tax return.
If your annual rent is more than ₹1,00,000, it is important to submit your landlord’s PAN to claim HRA or else your TDS rate on the rent may be high.
Yes. You can claim both benefits in the same year. However, you need to meet the condition that the house loan property and your rented accommodation are two different properties.
Yes, you can claim HRA if you own a house in one city and live in rented accommodation in another city for employment purposes.