This HRA Exemption Calculator will calculate how much tax you can save on your HRA.
What is HRA?
House Rent Allowance, or HRA as it is known in India, is a portion of an employee’s pay. An employee receives this tax-free benefit to aid with housing expenses. The amount of HRA received is often a percentage of the base pay and, under certain restrictions, is exempt from income tax up to a specified level. This benefit is typically provided to salaried workers who rent an apartment to assist them in covering their housing expenses.
How is HRA Exemption Calculated?
The following factors are used to determine eligibility for the HRA exemption:
- Actual HRA Received: The first and most significant factor in determining the HRA exemption is the amount of HRA that the employee actually received.
- Basic Income: When determining the HRA exemption, the employee’s basic salary is also taken into account.
- Rent Paid: The HRA exemption calculation takes into account the actual rent that the employee has paid for their lodging.
The HRA exemption is then calculated as the minimum of the following three:
- Actual HRA received
- 50% of the basic salary (for those living in metro cities) or 40% of the basic salary (for those living in non-metro cities)
- Rent paid minus 10% of the basic salary
How is HRA Taxed?
Here’s an example of how the HRA exemption is calculated in India:
Suppose an employee’s basic salary is Rs. 50,000 per month and they receive an HRA of Rs. 20,000 per month. Additionally, they pay a rent of Rs. 15,000 per month and is living in Delhi.
In this case, the HRA exemption calculation would be as follows:
- 50% of the basic salary = 50,000 * 50% = Rs. 25,000
- Rent paid minus 10% of the basic salary = 15,000 – (50,000 * 10%) = 15,000 – 5,000 = Rs. 10,000
- The minimum of (1) and (2) = Minimum of 25,000 and 10,000 = 10,000
So, the HRA exemption for this employee would be Rs. 10,000 per month. This means that only the remaining HRA amount (i.e. 20,000 – 10,000 = Rs. 10,000) would be taxed as a part of the employee’s income.
It’s important to note that the HRA exemption calculation is subject to change based on the government’s tax laws and regulations, so it’s advisable to consult a tax professional or refer to the latest tax laws for a more accurate and up-to-date understanding of the HRA exemption calculation.