HRA Calculation: How to Calculate House Rent Allowance & Claim Income Tax Exemption

House Rent Allowance is also commonly known as HRA. The employees earning a salary and living in a rented property can claim HRA exemption in a financial year against the rent they have paid. House rent allowance can only be applied by the salaried employee living in a rented accommodation.

Nevertheless, the amount you pay as rent in a year or the amount you get from your employer as House Rent Allowance (HRA) doesn’t always eligible for exemption under the Income Tax Act. Here is a quick look at how the House Rent Allowance exemption can be calculated.

How to calculate HRA TAX Exemption?

The nominal amount of the following is considered as per the Income Tax rules for exemption of HRA:

• The amount of HRA received

• Housing rent paid less than 10% of the basic salary

• 50% of the basic salary if rented property is in Chennai, Kolkata, Delhi, or Mumbai

40% of the basic salary if the rented property is located in other cities of India than these 4 metro cities

Example 

Let’s say, an employee paid rent of Rs 10,000 and the actual HRA amount is Rs 20000 whereas the annual basic salary is Rs 40000. In such a case, the amount that will qualify for tax exemption will be calculated as per below:

• Actual HRA: Rs. 20000 

• Actual rent paid: 10% of basic salary: Rs 10000 - Rs 4000 = Rs 6000

• 50% of basic salary = Rs 20000 or 40% of basic salary = Rs 16000

So, the minimum amount is Rs 6000 for tax exemption.

HRA Calculator Online 

The Income Tax Department of India has offered an online platform to calculate the HRA exemption. Simply, visit the incometaxindia.gov.in/Pages/tools/house-rent-allowance-calculator.aspx.

And can easily calculate your HRA exemption.

As per the Income Tax website, the HRA amount is needed to divulge in the Income Tax Return (ITR) in the column allowances in order to extent exempt under Section 10.