HRA Calculation

The salary of both public and private sector employees is composed of several parts and allocated towards different expenses. HRA is one such component. The HRA may be fixed or derived through an exclusive agreement between you and your employer.

The HRA exemption of tax is covered under Income Tax Act Section 10-13A and provides for the HRA deduction based on the amount lowest amongst these:

• The actual amount of HRA given by the employer
• 50% of your salary is eligible for the HRA exemption if you live in a Metro city of India
• 40% of your salary is HRA exempted if you live in a non-metro city
• Actual rent paid each month, minus 10 % of your salary (salary here means the basic salary, including the commissions and dearness allowance)

Also Read: Income Tax Slab: Rates & Deductions

Let’s take one example to understand HRA calculation:

Mr. Chauhan, employed in Delhi, lives in a rented accommodation for which he is paying a monthly rent of Rs.12,000 during the fiscal year 2018-19 (the assessment year 2019-20). He receives a basic salary of Rs.40,000 with an HRA of Rs.18,000 PM from his employer. The HRA deduction from income tax will be as follows-

• The house rent allowance or HRA exemption is available only to the HUF and the individuals under the Act
• Self-employed individuals and salaried people can claim rent deductions only if they do not receive tax exemption under the provisions of Section 10-13A
• The employee, HUF (Hindu Undivided Family) in which the employee is one of the members, the spouse or the minor child shall not enjoy ownership of any accommodation, where the concerned person is residing or working
• Those who wish to receive HRA exemption under Section 80 GG should not claim tax benefits related to any other self-occupied property they own elsewhere
• Under Section 80 GG, those who want to claim HRA deduction should furnish a self-declaration, using the form 10-BA. In this form, the individual will be required to show that he/she duly satisfies all the other abovementioned conditions

You will have to provide the following documents at the time of claiming HRA deduction:

1. If the rent you paid during a given financial year exceeds Rs.1 Lakh, you will have to provide the PAN card [1] details along with a copy of PAN of the landlord/property owner

2. The rent receipts, which should include the following details:

• Date
• Landlord’s name
• Tenant’s name
• PAN card details of the landlord
• Address of rented accommodation
• Stay duration
• A Revenue Stamp, along with the signature of the landlord

• Under Section 80 or any other section, the HRA exemption is only provided when you pay the rent to a landlord
• There is no HRA deduction for the periods when the rent is not paid
• When your job location changes (i.e. when you shift from a non-metro to a metro city or vice versa), or there is a change in your salary, the HRA deduction is calculated monthly. Hence, the HRA exemption or deductions may vary for the periods of change separately
• Apart from your father, if you pay rent to any other family member, HRA and related tax exemptions will be provided by the employer. To claim the HRA deductions, you should pay rent on a regular monthly basis and that too through the bank transfers to help the IT department easily deduce your expenditure

In case you pay house rent that exceeds Rs.1 lakh, then, in that case, you can claim HRA exemption towards the same. You will be required to furnish your PAN details of the property owner, along with the various rent receipts while claiming for HRA benefits.

HRA is only one of the ways to reduce your tax liability. In addition to HRA exemption and deduction benefits, the Income Tax Act 1961, has several sections that pertain to tax saving. These sections list down various tax saving investments and other provisions through which you can claim deductions and exemptions on your income in every financial year.

One of the most significant Sections is 80C that provides tax benefits up to the limit of Rs.1.5 lakh. It covers a range of insurance and investment instruments that can offer you not just tax-saving benefits but also help you in meeting other essential individual and family goals.

Insurance products provide your family with a safety cushion in case of an unfortunate happening that leaves them without a breadwinner. It provides financial support in the form of a death benefit that you may take as a lump sum or add the option of receiving monthly income along with it.



Also, the premium that you pay on the plan allows you to claim deduction up to the limit of Rs.1.5 lakh. Axis Max Life Insurance Smart Total Elite Protection Term Plan (UIN: 104N125V06; Non Linked Non Participating Individual Pure Risk Premium Life Insurance Plan) offers your family comprehensive financial protection by providing them for situations involving critical illnesses, disability and death of the policyholder. It also provides you with the benefit to avail of the return of premium option. You may even use our online term plan calculator to ascertain how much coverage would be adequate for you.

You may also consider an instrument such as ULIP (Unit Linked Insurance Plan) that offers you twin benefits of insurance and investment. Other tax saving investment options include the Public Provident Fund (PPF), National Pension Scheme and National Savings Certificate.

Also Read: Benefits of ULIPs

Now that you know what HRA is and how it works for both salaried and self-employed individuals, it is vital that you make the best use of it for tax-saving purposes. Also, plan your exemptions and deductions through HRA and other tax saving investments well in advance of the assessment period.

It will ensure that you can get the maximum tax benefits in the best way possible. Especially those of you who live in Tier 1 or 2 cities, meeting with rental costs and saving money is one of the toughest things to do. Having proper knowledge of HRA benefits and other tax saving investment benefits will be of great support to you in the process of saving your hard-earned money from slipping away.