What is House Rent Allowance (HRA)?

House Rent Allowance or simply HRA is a part of a salaried employee’s income that helps cover rental expenses. It is an allowance paid by employers to assist their employees in managing the cost of renting a house. One key benefit of HRA is that a portion of it can be exempted from tax if the employee is living in rented accommodation. 

The tax exemption on HRA depends on factors such as salary, the rent paid, and the city where the employee resides. However if the employee lives in their own house and does not pay rent, the entire HRA amount becomes taxable.

For those renting a home, the tax exemption can lead to significant savings. The actual exemption amount is calculated based on the least of three factors: the actual HRA received, 50% or 40% of basic salary (depending on the city), or the rent paid minus 10% of the basic salary. 

HRA is a valuable benefit for salaried individuals allowing them to lower their tax burden while managing their living expenses.

Important Points:

• Self-employed individuals cannot claim HRA exemptions as per the Income Tax Act regulations. However, they might be able to claim deductions towards the rented housing under Section 80GG.
• The old tax regime allows for HRA exemptions but the new tax regime does not. Therefore, claiming HRA deductions is only applicable when using the old tax regime.

What is the HRA Exemption Calculation Formula?

The Income Tax Department uses the following three criteria to determine the HRA exemption. The minimum amount from these three criteria is eligible for tax exemption.

• Actual HRA received as part of your salary package. 
• 50% of basic salary for those living in metropolitan cities (Delhi, Mumbai, Kolkata, and Chennai).
• 40% of basic salary for individuals living in non-metro cities. 
• Rent paid minus 10% of your basic salary. 

Example: 

Let’s assume your basic salary is Rs 50,000 per month. You live in a metro city and receive an HRA of Rs 20,000 per month. You pay a monthly rent of Rs 18,000 for your accommodation. To calculate your HRA exemption, you need to calculate least of the following:

• HRA received: Rs 20,000
• 50% of basic salary: Rs 25,000
• Rent paid - 10% of salary: Rs 18000 - Rs 5000 = Rs 13,000

In this case, the exempted HRA would be Rs 13,000 per month. You can claim a tax exemption on this amount.  

Eligibility Criteria for Claiming HRA Exemption

To claim House Rent Allowance (HRA) exemption in India, you need to meet a few key eligibility criteria. These are as follows: 

• Salaried Individual: You must be a salaried individual with HRA as part of your salary package. Self-employed individuals or those who don’t receive HRA are not eligible for this exemption. 
• Rent Payment: You must pay rent for the home where you live. If you own the house you reside in, the HRA exemption does not apply. 
• HRA in Salary: Your salary structure must include an HRA component, and your employer should specify this in your salary slip. 
• Actual Rent Paid: You should be paying rent for the accommodation you live in. It is important to have evidence like rent receipts to prove these payments. 
• Location: The house you are renting should be in a place where HRA rules apply. House Rent Allowance rules differ based on location with high exemptions in metro cities compared to non-metro areas. 
• No Ownership in the Same City: If you own a house it should be in a different city than where you are renting. You can still claim HRA if you are renting a home and own property elsewhere. 
• Proof of Rents: To claim HRA, you must submit rent receipts or a rental agreement to your employer as proof. If your rent exceeds Rs 1 lakh per year, you will also need to provide your landlord’s PAN number. 

Documents Required for HRA Exemption Claim

The amount of rent you pay plays a crucial role in determining the documents required for claiming House Rent Allowance (HRA) tax exemption.

• If your monthly rent is below Rs. 3,000, you don’t need to submit any rent receipts to claim HRA tax benefits. 
• If you are paying more than Rs. 3,000 each month, you will need to provide rent receipts to your employer as proof of the rent paid. 
• If your rent exceeds Rs. 8,333 per month, you must submit the PAN of your landlord. If your landlord does not have a PAN, you will need to provide a written declaration from the landlord.

Here is a list of documents required to claim HRA exemptions:

• Copy of your PAN card
• Copy of your landlord’s PAN card
• Copy of the rent agreement
• Rent receipts for the financial year

Who Can Use an HRA Calculator

• Salaried individuals living in rented accommodation. 
• Employees receiving HRA as a part of their salary. 
• Taxpayers looking to plan their taxes efficiently. 
• Self-employed individuals who may not directly receive HRA but can still claim rent under Section 80GG (with different rules). 

How to Use Chartered ONE HRA Calculator

Here’s how you can easily use our HRA calculator: 

• Choose your city type: Select if you are living in a ‘Metro City’ or ‘Other City’. 
• Enter salary details: Fill in your Basic Salary + DA + Commission received. 
• Input HRA Amount: Enter the HRA amount provided by your employer. 
• Enter rent paid: Input the actual rent you are paying. 
• Submit information: Enter your email address and click ‘Submit’.

The House Rent Allowance Calculator will instantly calculate the HRA exemption you can claim.

Benefits of Using Our HRA Calculator

Accurate: Our HRA rebate calculation tool gives you accurate results instantly and reduces the risk of errors. 

Saves Time: There is no need for manual tax calculations. Just enter required details and our HRA calculator will do the work for you.

Tax Planning: It helps ineffective tax planning by showing how much exemption you can claim. 

User-friendly: Our HRA online calculator is easy to use and is fully optimized for all devices. You can use it from the comfort of your home, office or even on the go.