HRA : Rules, Exemptions, and Calculations

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Hiral Vakil

HRA
Salary Components
Salary Income

House Rent Allowance is paid by an employer to employees as a part of their salaries. It is paid to meet the accommodation expenses. Salaried individuals who live in rental premises can claim exemption of HRA.

From FY 2020-21 onward, employees opting for New Tax Regime can not claim an exemption on HRA. HRA Exemption is only available if an employee opts for the Old Tax Regime.
Tip
From FY 2020-21 onward, employees opting for New Tax Regime can not claim an exemption on HRA. HRA Exemption is only available if an employee opts for the Old Tax Regime.

Employees are required to submit the rent receipts to their employers to claim the tax benefit. The employers, in turn, will calculate exempt House Rent Allowance and deduct the same from the employee’s taxable salary. You can know exempt house rent allowance from your Form 16.

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Understand Salary Income and its Components
It is important to understand the Salary Structure to do better tax planning.
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HRA Exemption

The least of the following will be deducted from salary as an exemption under HRA – House Rent Allowance:

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HRA Calculation

Example

Raj works in a company in Kanpur. He lives in a rented flat. He pays INR. 15,000/month as rent. Following is his salary structure.

Particulars Amount (In INR)
Basic Salary 5,00,000
HRA 1,75,000
LTA 25,000
Other Allowances 12,500
Gross Salary 6,15,000
Actual Rent Paid 1,80,000

The least of the following will be the exempt House Rent Allowance:

  1. Actual House Rent Allowance: INR. 1,75,000
  2. Actual Rent Paid (-) 10% of Basic Salary: INR. 1,30,000 [1,80,000 – 10%(5,00,000)]
  3. 40% of the Basic Salary: INR. 2,00,000 [40%(5,00,000)]

INR. 1,30,000 will be exempt HRA. Hence taxable HRA will be INR. 45,000 (1,75,000-1,30,000).

HRA Calculator
HRA(House Rent Allowance) is given by the employer as a part of their salaries. The HRA amount exempted from Income Tax differs based on salary and city.
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HRA Calculator
HRA(House Rent Allowance) is given by the employer as a part of their salaries. The HRA amount exempted from Income Tax differs based on salary and city.
Explore

What if I don’t receive any HRA?

Under Section 80GG, a deduction is allowed to an individual who pays rent without receiving any HRA. So you can claim a deduction from total income if you:

If all these conditions are fulfilled, a deduction is available as the least of the:

The important point to keep in mind is that deduction under Section 80GG is not allowed to an individual who receives HRA from an employer. Hence, check your Salary Slip to see if you are receiving any HRA. If you do, you can’t claim a deduction for rent paid under section 80GG.

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Example

Sameer works for a pharma company in Ahmedabad and receives a salary of INR 7,20,000. He receives HRA of INR 3,00,000 per month. He pays house rent of INR 2,40,000 to his landlord

The least from the following will be exempt from Taxes:

INR 60,000 will be exempt from Sameer’s total income under section 80GG.

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Can I claim both House Rent Allowance and deduction on the Home loan?

Yes, you can. The benefits of HRA and deduction for Home Loan can be availed simultaneously.

If you are living in a rental house & your own house is occupied by your spouse, children and/or your parents, you can claim:

If you are living in a rental house & your own house is also given on rent, you can claim:

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FAQs

How to calculate exemption on HRA?

Exemption on House Rent Allowance (HRA) is the lowest of
– Actual HRA received from an employer
– 50% (for Metro) or 40% (for Non-Metro) of Basic Salary
– Annual Rent Paid – 10% of Basic Salary

Is House Rent Allowance deductible under section 80C?

No. HRA is an allowance and is exempt from Salary Income. HRA exemption is allowed u/s 10(13A) of the Income Tax Act. You can know your exempt House Rent Allowance from Form 16 issued by your employer.

Can I claim the House Rent Allowance exemption if I live with my parents?

You can go for a rental agreement with anyone except your spouse and claim House Rent Allowance. So, if you have a rental agreement with your parents, you can ask for the House Rent Allowance tax benefit from your employer.

Which ITR needs to be filed if HRA is claimed?

Salaried individuals can file ITR-1 while claiming exempt HRA. However, salaried needs to file ITR-2 if income is more than Rs. 50,00,000.

When do I need to submit PAN of landlord to employer?

An employee needs to submit PAN of the landlord if the total rental payment for a year exceeds Rs. 1,00,000. If monthly rental payment is more than Rs. 50,000 then the employee needs to deduct TDS at the rate of 5% u/s 194IB and need to file Form 26QC. In the case of NRI Landlord, an employee needs to deduct TDS on payment and TDS Return in Form 27Q needs to be filed every quarter.

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