House Rent Allowance or HRA is a salary component included for most salaried individuals. Those living in rented homes can avail tax saves on HRA. Those who are wondering how to go about saving tax through HRA deduction, Fisdom’ HRA calculator is the right answer. Here, we will discuss the concept of HRA calculator and explain how to use it along with some of its key benefits.
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What is an HRA calculator?
HRA or House Rent Allowance often forms a key taxable component of a salaried individual’s salary slip. It is the amount paid by an employer to his/her employee towards the cost
of living in a rented accommodation.
HRA helps in managing the expenses incurred towards a rented house and also in saving on total tax outgo. In most Indian cities, the rising cost of living is partly attributed to the
rise in disposable income apart from inflation. Therefore, to ensure employee welfare, many organizations offer a House Rent Allowance or HRA to benefit those living in rented homes.
Fisdom’s HRA calculator helps in calculating the taxable and the non taxable amount of the HRA received.
Following the recommendation of the 7th Pay Commission, the HRA slabs in India have drastically changed. Cities are now categorized into 3 different slabs. Among these, Slab X refers
to the most urban cities requiring individuals to use an HRA exemption calculator. Slab Y refers to marginally low-cost cities.
How does a HRA calculator work?
Fisdom’s HRA calculator is very easy to use for computing HRA exemption. With the help of below-mentioned steps, you can estimate how much HRA can be claimed as exemption:
- Enter basic salary, HRA received, and dearness allowance received from your company along with the actual annual rent paid. Each of these has to be entered into the respective
slots provided in the calculator.
- Choose the option of metro or non-metro city, depending on where you reside.
- Click on the calculate option to know the exact HRA amount that will be tax exempt and on how much you need to pay tax on.
How to calculate HRA tax exemption
The HRA calculator considers several factors while calculating the exemption. However, the amount of HRA tax exemption that can be claimed is the lowest of the below-mentioned three provisions:
- The amount of HRA paid to an employee by the employer.
- The actual rent paid for housing less 10% of the basic pay.
- 50% of basic salary if one resides in a metro city or 40% of basic salary if residing in a non-metro city.
Here, salary means basic salary combined with dearness allowance and any commissions paid to the employee. No other allowances are considered for HRA deduction.
As a final step in computing the HRA, calculate the above three points and claim the lowest amount as HRA deduction.
Benefits of using an HRA calculator
The main advantages that can be availed from Fisdom’s HRA calculator are –
- The calculator is error free and can be used as many times as required.
- An individual can claim tax exemptions as per the calculations provided by the calculator.
- The calculator considers all the variables present in the HRA calculation. This helps in making the calculations full-proof.
Fisdom has several other calculators, such as SIP calculator, mutual fund calculator, etc that can be used by individuals or investors for better financial planning.
Who Can Claim Tax Deduction on HRA—Eligibility Criteria
A portion of HRA can be claimed as a tax deduction as per Section 10 (13A) of the Income Tax Act. However, to claim the tax deduction, the following eligibility criteria are to be
- A salaried individual.
- Those who receive HRA as a salary component.
- Those who reside in a rented house.
- Those who are actually paying house rent, i.e., the rent receipts, should be issued in the claimant’s name.
How HRA exemption is calculated for special cases
Here is how HRA exemption is calculated in special cases:
- Own a house in a different city: If an individual owns a house in a different city from where he/she works, they can still claim HRA exemption and a tax deduction for home loan EMIs paid. Appropriate proof is required under Section 10 (13A).
- Rent paid to family members: Even if someone pays rent to their family members, they can claim an HRA deduction. Rental agreement, financial transaction proof, and rent receipts should be produced. However, one cannot claim this benefit if they own the property or if their spouse owns the property.
- Rent shared with the spouse: If a person shares rent with their spouse, one of them can claim the entire amount as an HRA deduction. If separate rent receipts are obtained, both can claim the exemption. Duplication should be avoided.
- Individuals whose employers don’t pay HRA: If an employer doesn’t provide the HRA component, the employee can still claim HRA exemption under Section 80GG of the Income Tax Act by filing Form 10BA.
Understanding an individual’s salary structure is important for financial reasons and also to ensure appropriate tax saves where possible. One such component that can help a salaried individual
save taxes is house rent allowance, usually known as HRA. HRA calculator allows one to estimate the exact amount of HRA that will be taxable and how much will be exempted from tax.
Yes, you can claim HRA tax exemption. However, 30% TDS will be applicable in such cases.
Rent receipts for the last financial year can be used as proof of rent paid. If you do not have such receipts, you must show the financial statements that can help in proving rent payments.
According to the latest amendment to the IT Act, HRA and deduction on home loan interest rates can be claimed together.
You can claim tax exemption on HRA if you are paying rent to a family member. It is important to have sufficient and relevant documents to prove the transaction.
If you are paying rent for a rented house, you can claim tax deduction on the rent paid (under Section 80 (GG) of the Income Tax Act) if HRA is not part of your salary. You must furnish Form 10B for claiming tax benefit in this case.