HRA Calculator

The HRA calculator or HRA exemption calculator can be defined as an online financial tool that can help salaried employees determine their exempt house rent allowance (HRA) for a specific financial year. Since the taxpayer does not need to pay income tax on the exempted HRA, this calculator can be used to estimate the tax savings generated by claiming HRA benefits on income.

HRA tax benefits are determined as per Section 10(13A) of the Income Tax Act, 1961. Under current rules of this section, HRA exemption benefits can only be availed by salaried individuals who receive house rent allowance as part of their salary from their employers and pay for residing in rented accommodations. As a result, the HRA calculator is primarily designed to help such individuals in efficient tax planning.

Calculating HRA exemption involves a specific formula that considers various components of your salary such as basic, dearness allowance (if applicable) and HRA component in your salary.

Based on these salary components, the exempt HRA amount can be calculated using the HRA calculator.

1. As per current tax rules, the exempt HRA amount calculation formula is the lowest of the 3 options as shown below:

2. The actual HRA received from the employer as shown in your salary slip

3. 50% of the basic salary (plus dearness allowance, if applicable) for employees living in metro cities (Delhi, Mumbai, Kolkata, Chennai) or 40% of basic + DA for residents in non-metro cities

4.Actual rent paid minus 10% of the basic salary and dearness allowance (DA), if applicable

To get a better understanding of how the exempt HRA calculation works, let’s consider an example,Let’s assume the following information for a salaried individual residing in the metro city of Mumbai:

1. Annual Basic Salary: ₹600,000

2. Actual HRA received for the year: ₹300,000

3. Actual Rent paid in the FY: ₹200,000

Using the above formula:

Option 1: Actual HRA received = ₹300,000

Option 2: 50% of basic salary for Mumbai metro = 50% of ₹600,000 = ₹300,000

Option 3: Rent paid minus 10% of basic salary = ₹200,000 – (10% of ₹500,000) = ₹200,000 - ₹50,000 = ₹150,000

Since the minimum of these three amounts is ₹150,000. The annual tax-exempt portion of HRA in this case is ₹200,000.

Note: The above calculation is for illustrative purposes only.

The primarily purposes of a HRA calculator to help simplify the process of calculating your HRA exemption. Based on the exempt HRA amount, you can further calculate the tax savings that you can achieve by claiming HRA tax exemption benefit from your employer. To provide the exempt HRA amount, the HRA exemption calculator requires the user to input the following information:

1. Basic Salary: This is the basic salary you have received for the applicable FY.

2. HRA Received: This is the annual HRA amount received from the employer.

3. Actual Rent Paid: This is the actual rent you have paid/plan to pay during the applicable fiscal.

4. City Category: Choose whether you live in a metro or non-metro city.

Based on the above inputs, the HRA calculator will compute the exempt HRA amount that you can claim from your employer. Subsequently, this exempt amount will be deducted from your taxable income for the applicable financial year. Subsequently this will help you claim commensurate tax benefits at the time of filing income tax return in applicable assessment year. 

Currently, the HRA exemption benefit is available only the salaried individuals who have opted for the old tax regime. So, self-employed individuals or any individual tax-payer who has opted for the new tax regime is not eligible to claim the benefits of HRA exemption under current rules.

The key benefit of HRA exemption is the reduced tax burden and outgo on salaried tax-payers who live in rented accommodations. The extent to which you will be able to save tax however, depends on the slab rate of the individual taxpayer.

For instance, suppose a salaried individual is eligible to receive HRA exemption of ₹2 lakh for the applicable fiscal year. If this taxpayer belongs to the highest slab rate of 30%, the tax savings based on this HRA exemption will be Rs. 60,000 for the year (excluding cess). On the other hand if the taxpayer is in the 20% slab rate, the tax saved for the fiscal by claiming HRA will be Rs. 40,000 (excluding cess).

To ensure that your HRA exemption claim is not rejected for any reason, you should clearly know the eligibility criteria for making HRA exemption claims. Below is a short list of the key eligibility criteria for availing HRA exemption:

Using an HRA calculator offers multiple advantages to the user. Some of the most significant ones are:

If you have chosen the old tax regime, House Rent Allowance (HRA) deduction can significantly reduce your tax burden provided you can fulfill the applicable criteria and can submit applicable documentation. Using an HRA calculator ensures that you can figure out your potential HRA exemption amount ahead of time so that you can maximise your tax deduction benefits.