What is HRA (House Rent Allowance)?
House Rent Allowance (HRA) is a salary component paid by employers to employees to meet accommodation expenses. For salaried individuals living in rented houses, HRA can be a significant tax-saving tool. Under Section 10(13A) of the Income Tax Act, a portion of HRA can be claimed as an exemption, reducing your total taxable income.
How Can an HRA Calculator Help You?
Calculating the exact HRA exemption manually is complex because it involves comparing three different values and picking the lowest one. The Finzony HRA Calculator simplifies this process:
- Accuracy: Automatically applies the 'Least of the Three' rule mandated by the IT Act.
- Tax Planning: Helps you decide if you should negotiate a higher HRA component in your salary restructuring.
- City Factor: Automatically adjusts the calculation based on whether you live in a Metro (50%) or Non-Metro (40%) city.
- Instant Results: Provides a clear breakdown of how much HRA is tax-free vs taxable.
HRA Exemption Formula
The actual HRA exemption is the LOWEST of the following three amounts:
The Rule (Section 10(13A)):
- 1. Actual HRA Received from employer
- 2. Actual Rent Paid minus 10% of Salary (Basic + DA)
- 3. 50% of Salary (for Metro cities) OR 40% of Salary (for Non-Metro cities)
*Salary here refers to Basic Salary + Dearness Allowance (DA). Metro cities include Delhi, Mumbai, Kolkata, and Chennai.
Calculation Example
Suppose you live in Delhi (Metro) and pay a rent of ₹12,000/month. Your salary details are:
- Basic Salary: ₹23,000/month
- HRA Received: ₹15,000/month
- Rent Paid: ₹12,000/month
- Calculation ---
- 1. Actual HRA: ₹15,000
- 2. Rent - 10% Basic: ₹12,000 - ₹2,300 = ₹9,700
- 3. 50% of Basic: ₹11,500
- Exempted HRA = Lowest of above = ₹9,700
How to Use Finzony’s HRA Calculator?
- Enter Basic Salary: Input your annual Basic Salary (check your payslip).
- Enter DA: Input annual Dearness Allowance (if any).
- Enter HRA Received: Input the annual HRA amount provided by your employer.
- Enter Rent Paid: Input the total rent you pay annually to your landlord.
- Select City Type: Choose 'Yes' if you live in a Metro city (Delhi, Mumbai, Kolkata, Chennai), else 'No'.
Benefits of using HRA Calculator
- Error-Free: Eliminates manual math mistakes in percentage calculations.
- Unlimited Usage: Use it multiple times to compare different rent scenarios.
- Tax Optimization: Helps you plan your rent payments to maximize exemption.
Frequently Asked Questions
How much HRA is tax-exempt?
The exemption is the minimum of: Actual HRA received, Rent paid minus 10% of salary, or 50% (Metro)/40% (Non-Metro) of salary.
Can I claim HRA if I live with my parents?
Yes, you can claim HRA exemption by paying rent to your parents. You must have a valid rent agreement and rent receipts. Your parents will need to show this rent as income in their tax returns.
Is PAN of landlord mandatory?
If the annual rent paid exceeds ₹1,00,000, you must provide the landlord's PAN to your employer to claim TDS exemption.
Can I claim both HRA and Home Loan Deduction?
Yes, if you live in a rented house (in a different city or due to work reasons) and also own a house for which you are paying a loan, you can claim both HRA exemption and home loan interest deduction.