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Knowing how to calculate House Rent Allowance (HRA) is essential for maximising tax savings and making sure you are making the most of all applicable exemptions. HRA is an important part of your salary that helps cover your house rent.
The HRA you receive depends on your salary, the rent you pay, and the city you live in. If you are a salaried employee staying in a rented house, you can calculate it manually or use an HRA calculator to find out how much tax you can save.
House Rent Allowance is a part of your salary that helps cover the cost of living in a rented house. Your employer provides HRA and is partially or fully tax-exempt if you meet certain conditions. It not only supports your rent expenses but also helps reduce your overall tax burden.
It is initially taxable but can be partially or fully exempt under Section 10(13A) of the Income Tax Act if you live in a rented house. If you do not pay rent, HRA is fully taxable.
HRA calculation is based on your basic salary, Dearness Allowance (DA), and any other variable allowances. The tax-exempt portion of HRA is determined using the lowest value from these three:
Actual house rent allowance received from your employer
50% of basic salary + DA (for metro cities) or 40% of basic salary + DA (for non-metro cities)
Actual rent paid minus 10% of basic salary
The exempted HRA amount is the lowest of the following:
Actual HRA received from your employer
The rent paid exceeding 10% of your salary (including basic salary and dearness allowance)
50% of your basic salary and DA if you reside in a metro city, or 40% if you live in a non-metro city
Let’s take the example of person X, who lives in Mumbai and pays ₹18,000 per month as rent. Here is a breakdown of his salary structure:
Salary Component |
Amount (₹) |
|---|---|
Basic Salary |
30,000 |
HRA |
18,000 |
Conveyance Allowance |
4,000 |
Medical Allowance |
2,000 |
Special Allowance |
3,500 |
Now, using the HRA exemption calculation, you compare the three values:
Actual rent paid minus 10% of basic salary = ₹18,000 - (10% of ₹30,000) = ₹18,000 - ₹3,000 = ₹15,000
Actual HRA received from employer = ₹18,000
50% of basic salary (for metro cities) 50% of ₹30,000 = ₹15,000
The lowest of these three values is ₹15,000, so ₹15,000 is exempt from tax, and the remaining ₹3,000 (₹18,000 - ₹15,000) is taxable.
HRA can be claimed if you meet the following conditions:
HRA exemption is available only if the taxpayer lives in a rented house, those residing in their own home or with family members cannot claim the exemption
Rent must be paid to the landlord during the financial year, supported by rent receipts or bank statements as proof
HRA must be mentioned on the salary slip to be eligible for the exemption
Valid documents like rent receipts, rental agreements, or bank statements are necessary and must be kept for tax audits
When claiming an HRA deduction, you keep the following points in mind to ensure compliance and maximise your tax benefits:
You can claim HRA even if you have a home loan on a different property
Rent paid to parents is eligible for HRA exemption if you provide a valid rent receipt
If annual rent exceeds ₹1 Lakh, you must submit your landlord’s PAN details
For an NRI landlord, deduct 30% TDS from the rent before making the payment
No HRA exemption is allowed if you pay rent to your spouse
The tax-exempt portion of your HRA is the least of the following:
Actual rent paid minus 10% of basic salary
Actual HRA received from the employer
50% of the basic salary (for metro cities) or 40% of the basic salary (for non-metro cities)
Any HRA amount exceeding the lowest of these three is taxable.
Yes, DA is included in the HRA calculation if it is part of your salary. The exemption is 50% of (Basic + DA) for metro cities and 40% for non-metro cities.
If you live in a house you own, you cannot claim HRA. HRA exemption is only available when you reside in a rented house. If you're living with family or in a self-owned property, you are not eligible for HRA tax benefits.
Yes, you can claim HRA by paying rent to your parents if you live with them. However, they must declare this rental income in their tax return. HRA exemption is available only under the old tax regime, not the new one.
HRA allowance is calculated based on the lowest of the following three amounts:
Actual HRA received from your employer
50% of basic salary + dearness allowance (for metro cities) or 40% (for non-metro cities) of basic salary + dearness allowance
Rent paid minus 10% of basic salary + dearness allowance
You cannot claim 100% HRA. However, you can maximise your HRA exemption by following methods:
Live in a rented house and pay higher rent relative to your salary
Choose a metro city like Delhi, or Mumbai where 50% of the salary is considered
Maintain valid rent receipts and rent agreements
In HRA calculation, 10% of salary refers to 10% of your basic salary including dearness allowance. It is calculated as the rent paid minus this 10%, along with other criteria to determine the tax-exempt amount.
The three formulas for calculating HRA are:
Actual HRA received from employer
Actual rent minus 10% dearness allowance
50% (in metro city) or 40% (in non-metro city) + dearness allowance
It refers to the HRA being 18% of the basic salary.
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