House Rent Allowance (HRA) Calculation 2023: Salaried employees living in rented accommodation can claim HRA exemption against the rent paid in a financial year. This facility is not available to employees who are not living in rented accommodation. Also, this facility is not available under the New Tax Regime.
However, the total amount you get from your employer as House Rent Allowance (HRA) or the total rent you pay in a year doesn’t always qualify for exemption under the Income Tax Act. Here’s a look at how HRA exemption is calculated with examples.
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HRA Tax Exemption Calculation
For HRA exemption, the least/minimum amount of the following is considered under the Income Tax rules.
- The actual amount of HRA received
- Rent paid Less 10% of the basic salary
- 50% of the basic salary if rented accommodation is in Kolkata, Chennai, Mumbai and Delhior40% of the basic salary if the rented accommodation is in cities other than the 4 metros mentioned above.
In case the employee has not paid any actual rent in the financial year, then the entire HRA amount will be taxable.
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Example 1: Suppose you paid an actual rent of Rs 1,00,000 and your actual HRA amount is Rs 2 lakh while you annual basic salary is Rs 4 lakh.
In this case, the amount that will qualify for tax exemption will be the least of the following:
- Actual HRA: Rs 2 lakh
- Actual rent paid – 10% of basic salary: Rs 1 lakh-Rs 40,000 = Rs 60,000
- 50% of basic salary = Rs 2 lakh (if living in 4 metros) or 40% of basic salary = Rs 80,000 (if living in other than 4 metro cities)
Here the least amount is Rs 60,000, which will qualify for tax exemption.
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Example 2: Suppose the actual Rent paid by you is Rs 2.5 lakh, and your HRA amount is Rs 5 lakh while the basic salary is Rs 6 lakh.
In this case, the amount that will qualify for tax exemption will be the least of the following:
- Actual HRA: Rs 5 lakh
- Actual rent paid – 10% of basic salary: Rs 2.5 lakh-Rs 60,000 = Rs 60,000 = Rs 1,90,000
- 50% of basic salary = Rs 3 lakh (if living in 4 metros) or 40% of basic salary = Rs 2.4 lakh (if living in other than 4 metro cities)
Here the least amount is Rs Rs 1.9 lakh, which will qualify for tax exemption.
HRA Calculator Online
The Income Tax department has provided an online utility for the calculation of HRA exemption at https://incometaxindia.gov.in/Pages/tools/house-rent-allowance-calculator.aspx
You can go to the above link and calculate your HRA exemption.
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As per the Income Tax website, the amount of HRA is required to disclose in the Income Tax Return (ITR) under the column allowances to the extent exempt under Section 10. The relevant section under which the amount of exempt HRA is to be shown is Section 10 (3A).
