Exemption Calculator for HRA: How It Works

House Rent Allowance (HRA) is a crucial component of an employee's salary package, designed to help cover the renting accommodation costs. Under the Income Tax Act of 1961, specifically Section 10(13A), a portion of HRA is exempt from taxation, subject to certain conditions and limits. An HRA Exemption Calculator is a valuable tool that simplifies determining the amount of HRA that can be claimed as a tax exemption.

In this blog, we will explore the benefits of the exemption calculator for HRA and how it works. 

What is HRA?

HRA stands for House Rent Allowance employers provide to help employees cover living costs in a rented property. It marks an essential portion of any salaried employee’s compensation. This allowance is part of the CTC and provides several benefits to employees. 

According to Section 10 (13A) and Rule 2A of the Income Tax Act, 1961, HRA is partially taxable. Any government or privately employed person can avail HRA exemption, upon submitting the required documents. However, self-employed individuals cannot access this benefit. 

What Does HRA Exemption Mean?

A salary or compensation falls under income tax. However, House Rent Allowance can be excused from taxing, if you live in a rented house. People who get HRA but do not live in a rented house cannot avail of HRA exemption. The amount to be excused is determined by various factors such as actual rent paid, basic salary, and residence location.  

How to Calculate HRA Exemption?

You can easily calculate HRA exemption following the steps below:

• Step 1: Identify the allocated HRA received from your employer
• Step 2: If you live in metro cities like Delhi, Kolkata or Mumbai, calculate 50%  of your basic salary and dearness allowance. 
• Step 3: If you live in non-metro cities, take 40% of your basic salary and dearness allowance.
• Step 4: Identify how much rent you paid for a month
• Step 5: Deduct 10% of your basic salary and dearness allowance from your rent paid.

Out of these three amounts, the lowest amount will be exempted from taxation. 

Also Read:- Understanding Finance Function: From Meaning to Importance in Business

Example of HRA Exemption Calculation

Let us consider the case of Mr Y to calculate the HRA exemption:

According to this, let us calculate his annual scenario.

According to the steps mentioned above, 40% of his salary would be Rs. 1,20,000. His excess salary can be calculated at Rs. 54,000. According to this data, the lowest amount is Rs. 54,000, which will be tax-exempt. 

Why Use the Online Exemption Calculator for HRA?

Using an online exemption calculation for House Rent Allowance is beneficial for the following reasons:

1. Faster: The process is faster and more convenient. Just enter your salary and dearness allowance along with your city and rent paid, and you will know which amount is exempted, and what is taxable. 
2. Claim: You can claim tax exemption based on the exemptions. 
3. File Taxes: It makes filing taxes easier and more accurate. 

Documents Required for HRA Exemption Calculation

To ensure a smooth and efficient HRA exemption claim process, you need to submit some documents to your employer. 

If you pay more than Rs. 1,00,000 in rent annually, the PAN card of your landlord is mandatory. Along with these, you need to submit the rent receipts containing the following:

• Landlord’s name
• Tenant’s name
• Date 
• Rented resident address
• Landlord’s signature
• Stay duration
• Revenue stamp 

Moreover, you also need to prepare photocopies of your rent agreement. 

Conditions for HRA Exemption

To be eligible for HRA exemption, you need to meet certain conditions listed below:

• Live in a rented house
• Receive an HRA
• Submit valid receipts as proof

However, according to Section 80 (GG) of the Income Tax Act, 1961, you can still claim HRA exemption even if you do not get House Rent Allowance. For this, you need to fill out Form 10B. Moreover, ensure that neither you nor your spouse or children own any accommodations where you live. 

Conclusion 

An HRA exemption calculator is an excellent financial tool for salaried employees. By automating the calculation process according to Income Tax rules, it ensures safe and secure claims and tax benefits.  

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