HRA Calculation: Afraid with math of hra, know its details here, also learn the method of hra calculation
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What is HRA
HRA is an important tax-saving provision under Section 10(13A) of the Income Tax Act. The purpose of HRA is to reduce the cost of housing, and hence a major part of the rent can be used as a deduction. The HRA exemption is decided on the basis of the average cost of living in a particular city. That is why the amount of HRA offered as salary varies from city to city. Organizations fix the salary of the employees in such a way and include the HRA component in it, which reduces the tax liability of the employee. The eligible HRA is calculated on the basis of certain formulas and is deducted from your total income.
How is HRA calculated?
There are three situations to calculate the HRA exemption amount. The case in which the lowest exclusion is calculated is considered the deductible amount.
Actual amount of HRA received by the employee.
50% or 40% of basic salary for employees living in metro or non-metro cities respectively.
The actual rent paid by the employee from which 10% of his basic salary is deducted.
How does this work
To better understand how this works, let’s consider an example.
Suppose you live in New Delhi and your basic salary is Rs.40,000/- per month or Rs.4,80,000/- per annum. You get Rs.11,000/- per month HRA and pay Rs.14,000/- per month as rent for your stay. Considering these figures, your HRA exemption amount will be the lowest of the following three calculations:
Actual amount of HRA received i.e. Rs.11,000/- x 12 = Rs.1,32,000/-
50% of Basic Salary (for metro cities), i.e. 50% of Rs.4,80,000/- = Rs.2,40,000
Actual rent paid as reduced by 10% of basic salary i.e. Rs.1,68,000/- (14,000 x 12) (minus) Rs.48,000/- (10% of Rs.4,80,000/-) = 1 Rs.20,000/-
Note: All the above figures have been taken on an annual basis.
The lowest amount in the above calculation is Rs.1,20,000/-, which is the HRA exemption for which you are eligible.
Who can claim HRA exemption?
HRA benefits are not available only to employees who receive HRA as a part of their salary and pay rent. If you live with your parents as a rent paying tenant and have a valid rent receipt or proof of rent payment, you can be eligible for HRA deduction. But, in such cases your parents will have to give the details of rent received from you while filing their income tax return. If you do not get HRA as a part of salary but you pay rent for living, you can claim HRA under section 80GG if certain conditions are met.
Things to remember while claiming HRA
You can claim HRA by submitting the rent receipts to your employer or while filing your final income tax return.
If your annual rent is more than Rs.1,00,000/-, you need to submit PAN details of your landlord to claim HRA.
If you live in a shared, rented accommodation, your rent agreement should clearly state the share of rent to be paid by each tenant. Your HRA will be calculated on the basis of this agreement.
You cannot claim HRA if you receive rent from a property that you own.
If you live in a property that you own or you live in that property, you cannot claim HRA.
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