How To Calculate Your HRA Exemption?

House Rent Allowance (HRA) being a component of your salary forms a part of your taxable income. It not only increases your income, but also increases your tax liability. However, not the whole amount of HRA is actually taxable, some of it might be exempt and sometimes the whole of it. Want to know how much of your HRA is taxable and how much of it is exempt, then you can easily make HRA exemption calculation for yourself.

How To Calculate Your HRA Exemption

What is House Rent Allowance (HRA)?

HRA or House Rent Allowance is a component of your salary. It is an allowance provided by an employer to his/her employee for his/her rented accommodation. If a salaried employee lives in a rented accommodation, then he might be entitled to House Rent Allowance. Such allowance is taxable in the hands of an employee.

Section 10(13A)

The House Rent Allowance is regulated by the provisions of Section 10(13A) of the Income Tax Act, 1961, in accordance with Rule 2A of the Income Tax Rules. According to this section you can claim exemption on the HRA received, subject to certain conditions.

However, HRA is fully taxable if the employee is living in his own house or if he does not pay any rent.

Who can avail HRA Exemption?

HRA Exemption is available only to a salaried individual who receive HRA as per the terms of employment and is living in a rented accommodation. Self- employed professionals cannot avail the exemption.

How much is exempted?

According to Section 10(13A) of The Income Tax Act, least of the following is exempt:

  1. Actual HRA received,
  2. 50% of salary for metro cities, or 40% for non-metro cities, and
  3. Excess of rent paid annually over 10% of annual salary.

Note: For calculation purpose, the salary considered is Basic Salary + Dearness Allowance (if it forms a part of retirement benefits) + Commission received on the basis of sales turnover.

Examples of Calculation of Taxable HR

Example 1: Basic monthly salary of Mr X is INR 20,000 per month. He receives HRA of INR 7,000 per month and pays rent of INR 8,500 per month. Mr X lives in a metro city.

Least of the following is exempt:

  • Actual HRA received = INR 84000 (7000*12)
  • 50% of salary since he lives in a metro city = INR 1,20,000 ( 50% of 2,40,000)
  • Actual rent paid less 10% of salary =INR 78,000 ( 1,02,000 – 24,000)

It is evident that the least of the following i.e. INR 78,000 is exempted HRA. Therefore, taxable HRA will be INR 6,000 (84,000 – 78,000).

Salary here will be basic salary in the absence of DA and Commission.

Example 2: Basic salary of Mr Y is INR 2,50,000 per annum, DA ( forms part of retirement benefit) is INR 1,00,000 per annum, Commission on sales turnover is INR 50,000. HRA received is INR 36,000 per annum and rent paid is INR 48,000 per annum. He lives in a non-metro city.

Least of the following is exempt:

  • Actual HRA received = INR 36,000
  • 40% of salary since he lives in a non- metro city = INR 1,60,000 ( 40% of 4,00,000)
  • Actual rent paid less 10% of salary = INR 8000 ( 48,000 – 40,000)

It is evident that least of the following i.e. INR 8,000 is exempted HRA. Therefore taxable HRA will be INR 28,000 (36,000 – 8,000).

Salary here will be basic salary + DA + Commission =INR 4,00,000 ( 2,50,000 + 1,00,000 + 50,000)

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