Hi! Folks! Have you ever heard about something called HRA? It is like a secret weapon when it comes to save your hard-earned money when you file your Income Tax Return.
HRA means House Rent Allowance.
Imagine: You are working and living in a rented place like a Bengaluru city. Your company give you HRA as part of your salary. But if you don’t understand how to use this HRA in Tax Return, you might end up paying more taxes than you need to.
We will talk about what happens if you forget to use it, or if there is a mistake in how it is calculate. Here we are making sure you do not lose out on your money!
Note: Tax exemption of house rent allowance is not available in case you opt for the New Tax Regime. HRA exemption is available only under the Old Tax Regime.
Table of Contents
House Rent Allowance (HRA) Means?
When you are earning a salary income and your employer give a amount to compensate Rental Expense for living by way of allowance it is called HRA and it is also included in your CTC along with other allowances.
Taxability of HRA in Income Tax
Any Amount you received in form of Salary is taxable but income tax provision allow by way of deduction. This Allowance is taxable if you living in own Property or property owned by parents.
But if you don’t own a house or own a house in different place other than Employment location and you live in a rented place then this allowance is Exempted Partially or Fully in Section 10(13A) of Income Tax Act, 1961.
This Allowance only available if you file your Income Tax Return (ITR) in Old Tax Regime. Since, House Rent Allowance not allowed in New Tax Regime (115BAC) of Income Tax.
You Can also check our guide on all allowable Tax Deduction of Salary income
But Next Question is how to Calculate it ? So, use our HRA Calculator for finding out Exempted and Taxable Portion of HRA. Please Fill Below all Fields to get your Taxability.
HRA Calculator
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Step by Step Calculation of HRA Exemption.
First you need to check all your salary certificates (1st April to 31st March of Financial Year) and find: Basic Salary, Dearness Allowance(DA) and HRA Received Amounts.
Then Find each below Amount
- Actual HRA Received Amount
- Actual Rent Paid Less 10% of Basic Salary + Dearness Allowance(DA)
- 50% of Basic Salary + DA (If you are reside in Mumbai, Delhi, Kolkata or Chennai)
40% of Basic Salary + DA (For Other City)
After Calculating all above Three Condition Lowest of one out of three Amount will be your HRA Exemption. That’s it.
You can Try this by using our HRA Calculator.
Example of HRA Calculation
Mrs. Priyanka, who lives in a rented home with her parent in a Bengaluru. She Pays Monthly Rent of 50,000/- and Received 45,000/- as a HRA also Basic Salary she received is 75,000/- as per her latest salary slip.
Now, we calculate how much HRA allowable as per Income tax
- Condition 1: Actual HRA = 45,000/-
- Condition 2: Actual Rent Paid Less 10% Salary+DA = 50,000 – 10% of (75,000)
= 50,000 – 7,500 = 42,500/- - Condition 3: 40% of Salary (since she reside in a Bengaluru City Other than Specified City)
= 40% of 75,000 = 30,000/-
Lowest of All three Amount will be a Exempted HRA So, 30,000/- Being a lowest of Three (45000, 42500, 30000) will be Exempted
Remaining Amount of HRA 15,000/- (45,000 – 30,000) will be Taxable in Income Tax Return.
Frequently Asked Questions
What is a Full Form of HRA?
HRA stands for House Rent Allowance. It’s an allowance provided by employers to employees to cover rental expenses.
Is HRA taxable under Income Tax regulations?
HRA is taxable but can be partially or fully exempted under Section 10(13A) of the Income Tax Act, 1961, if above discussed criteria are met.
HRA Exemption available in New Tax Regime?
HRA exemptions are applicable only under the Old Tax Regime. They are not exempted under the New Tax Regime (115BAC) of Income Tax.
What are the steps to calculate HRA exemption?
The process involves checking salary certificates for Basic Salary, Dearness Allowance, HRA received and Rent Paid. Then, calculating three different conditions to determine the lowest amount among them for exemption.
HRA Available if employee owns a property but lives in a rented place?
Employee owns a property but resides in a rented place then HRA exemption not be applicable if Both Property in same City, If Place of own Property and current employment/residence city is different then HRA Allowable.
Is there a specific calculator available to determine HRA exemptions?
Yes, an HRA Calculator can be used to find out the exempted and taxable portions of the HRA. You Can Checkout our HRA Calculator here.
HRA calculation Percentage(%) is based on the city of residence?
Yes, It’s 50% of Basic Salary + DA for specific cities (Mumbai, Delhi, Kolkata and Chennai) and 40% for others.
What happens if there’s a mistake in the HRA calculation?
Errors in HRA calculation might lead to incorrect exemptions. It’s important to ensure accuracy to avoid false payment of taxes.
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