When you look at your salary slip, you will find that your salary structure comprises many different components. And one such component is the House Rent Allowance (HRA) which every company must include in the employee’s salary as per the Government of India. The Income Tax Act of 1961 regulates the HRA rules, and section 10(13A) lays down the tax exemptions for a salaried employee. You can quickly compute the taxable and exempted HRA amount by using an online tool. This tool or HRA calculator rules align with the IT Act regulations.
Explanation of HRA
Every employer, by law, has to give a sum of money called the House Rent Allowance (HRA) to an employee for paying the house rent as part of their salary structure. The HRA amount is exempt from taxes if paid towards rental payments by the employee, and they must provide a rent receipt to claim the exemption. Even self-employed individuals can claim HRA exemption under section 80GG of the IT Act. The availability of an HRA calculator online has made the calculation of the tax exemption amount convenient.
Rules for Calculating HRA Tax Exemptions
If you are a salaried employee, then the HRA tax exemptions that you can claim from your yearly taxable amount depend on the lowest value of any one of the following conditions:
- Actual HRA amount that you receive from your employer as part of your salary.
- The actual rent that you pay minus 10% of the salary.
- If you stay in a metro city, then 50% of the salary.
- If you stay in a non-metro city, then 40% of the salary.
An HRA exemption calculator will consider all these factors to give you the HRA-exempted and taxable amount.
An example for calculating the HRA exemption using the above rule is as follows:
You are staying in a metro city like Mumbai, and you have rented a house for which you are paying INR 20000 every month. The job you are doing pays you a house rent allowance of INR 25000, and the salary is INR 50000.
Then the HRA calculation for income tax exemption allowed for HRA as per the above three scenarios are,
The actual house rent that you are paying is of the value = INR 20000
The actual rent that you pay minus 10% of the salary = 20000 – (10% of 50000) = 20000 – 5000 = INR 15000
Since you are staying in a metro city, Mumbai, it is 50% of the salary = 50% of 50000 = INR 25000
Thus, as per the rule of HRA calculation for a tax deduction, you can claim the lowest of the above three values, which is INR 15000.
What is an HRA Online Calculator?
This calculator is an online tool you can access on the income tax department of India’s website or any financial company’s portal. It will help you know the HRA exemption amount and the taxable HRA amount. The HRA calculator applies the rules and regulations of the income tax act.
How to Calculate the House Rent Allowance Online Using the Calculator?
The steps you have to follow while using this calculator on the income tax department’s official website are as follows:
Step 1: On the main home page, scroll down to a section with the heading “Important Links” and click on Tax Calculators link.
Step 2: The next page, which opens, has many tools, but you need to click on the House Rent Allowance Calculator to access the tool.
Step 3: Once the tool opens, the first field is Basic Salary, and you must enter the value based on the component available on your salary slip.
Step 4: The following field is DA, forming part of the salary, and refers to the value from the Daily Allowance (DA) component on your salary slip.
Step 5: In the Commission (as % of turnover achieved by the employee) field, enter the commission you receive as mentioned in the salary slip.
Step 6: Now enter the house rent allowance you get in the HRA Received box for HRA deduction calculation.
Step 7: In this box that says Rent Paid, enter the rent you pay for the rented property.
Step 8: Lastly, check the Tick if yes box of the Tick if residing in the metro city field only if you are staying in a metro city or leave it unchecked.
Step 9: Click on the Calculate button, and you will get the Exempted and Taxable House Rent Allowance values which you can use for tax computation purposes.
Documentation and Claiming Process of HRA
The HRA calculator of income tax department will let you know the HRA amounts for which you need to pay tax and how much you can claim as a deduction. However, you will still have to go through the documentation and claiming process of HRA as follows:
- To avoid paying excess tax deducted at source, you can provide your employer with the tax receipts of the rent you paid or the photocopy of the rental agreement so that you can claim the HRA tax exemptions before any deductions by following the HRA calculation formula.
- You can even claim your HRA tax exemptions while you file for the income tax returns, and the income tax department may ask for proof, for which you have to provide the same documentation as the above point.
The rent receipt should include the date, owner’s name, address, your name, PAN details of the owner, and duration of stay, and it should contain the owner’s signature over an affixed revenue stamp.
In case the rent amount exceeds INR 1 lakh, you will have to give the owner’s PAN card photocopy.
The HRA calculator rules the tool follows fairly simple and entirely based on the rules and regulations of the income tax act. Understanding the house rent allowance component is essential for knowing how it is computed and how you can save money by reducing your taxable income. This calculator helps you to maximize your tax savings and properly utilize the benefit the HRA component in your salary provides you.