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LoansJagat Team
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5 Min
03 Jun 2025
How to Calculate HRA in Salary – Complete Guide with Examples
House Rent Allowance (HRA) is an essential part of many salaried employees’ income and can provide significant tax relief under Section 10(13A) of the Income Tax Act.
Let’s take the example of Priya, who works for a private firm in Mumbai. Her monthly basic salary is ₹40,000, and she receives ₹18,000 as HRA. She pays ₹15,000 in monthly rent and lives in a metro city, which qualifies her for a higher exemption threshold.
To calculate her tax-exempt HRA, we compare three amounts and select the lowest: the actual HRA received, which is ₹18,000; 50% of her basic salary (since she resides in a metro), which is ₹20,000; and the rent paid minus 10% of her basic salary, which is ₹15,000 – ₹4,000 = ₹11,000. Among these, ₹11,000 is the lowest and therefore exempt from tax.
Component | Amount (Monthly) |
Actual HRA Received | ₹18,000 |
50% of Basic Salary | ₹20,000 |
Rent Paid – 10% of Basic Salary | ₹11,000 |
So, ₹11,000 of her HRA is tax-free, and the remaining ₹7,000 is taxable.
Who Is Eligible to Claim HRA?
Ankit works for a marketing firm in Pune and earns a monthly basic salary of ₹50,000. His salary also includes an HRA component of ₹20,000. He pays ₹16,000 in monthly rent for a flat he has rented close to his office.
Because Ankit is a salaried employee, lives in rented accommodation, and receives HRA as part of his salary, he is eligible to claim HRA exemption under Section 10(13A) of the Income Tax Act.
Here’s a quick summary of the eligibility criteria:
Eligibility Criteria | Does this apply to Ankit? |
Salaried employee | Yes |
HRA is part of salary | Yes |
Pays rent for residential accommodation | Yes |
Lives in their own house | No |
Since Ankit meets all three main conditions, he can claim HRA exemption on the rent he pays.
Factors That Affect HRA Calculation
Several factors influence how much House Rent Allowance (HRA) can be claimed as a tax exemption. Understanding these helps employees estimate their tax benefits correctly.
Kavita works in Bengaluru and receives a basic salary of ₹50,000 per month. She gets ₹22,000 as HRA and pays ₹18,000 monthly rent for her apartment. Her HRA exemption depends on a few key factors.
Key Factors Affecting HRA Calculation:
Factor | Kavita’s Details | Impact on HRA Calculation |
Basic Salary | ₹50,000 per month | Used as a base to calculate exemption limits |
Actual HRA Received | ₹22,000 per month | Maximum limit for exemption |
Rent Paid | ₹18,000 per month | Influences exemption after deducting 10% of basic salary |
City of Residence | Bengaluru (metro city) | Exemption allowed on 50% of basic salary (metro cities), else 40% |
For Kavita, the exempt portion of her HRA is the lowest of: actual HRA received (₹22,000), 50% of basic salary (₹25,000), or rent paid minus 10% of basic salary (₹18,000 – ₹5,000 = ₹13,000). Therefore, ₹13,000 is tax-exempt each month.
Step-by-Step Guide to Calculate HRA
Calculating House Rent Allowance (HRA) exemption helps salaried employees reduce their taxable income. Here’s how to do it in simple steps:
Step 1: Gather Your Salary Details
Identify your monthly basic salary, the HRA you receive from your employer, and the rent you pay for your accommodation.
Step 2: Determine Your City of Residence
Check if you live in a metro city (Delhi, Mumbai, Chennai, Kolkata, Bengaluru, or Hyderabad). This affects the percentage of basic salary used in calculations.
Step 3: Calculate Three Values
You need to find three amounts:
- The actual HRA received from your employer.
- 50% of your basic salary if you live in a metro city; otherwise, 40%.
- Rent paid minus 10% of your basic salary.
Step 4: Identify the Lowest Amount
The minimum of the three values calculated above is the exempted portion of your HRA under tax laws.
Step 5: Calculate Taxable HRA
Subtract the exempted HRA from the total HRA received to find the taxable amount.
By following these steps, you can easily compute your HRA exemption and optimise your tax savings.
Documents Required to Claim HRA Tax Exemption
Document | Description | When Required |
Rent Receipts | Dated receipts from the landlord showing monthly rent paid | Mandatory if the monthly rent is above ₹3,000 |
Landlord’s PAN Card | Permanent Account Number of the landlord | Required if the annual rent paid exceeds ₹1,00,000 |
Rental Agreement | The signed lease agreement between the tenant and the landlord detailing the rent terms | Recommended for verification |
Employee’s Identity Proof | Proof of identity such as Aadhaar, PAN card, or passport | For employee verification |
Common Mistakes to Avoid While Claiming HRA
Common Mistake | Impact | How to Avoid |
Not submitting rent receipts on time | HRA exemption may be disallowed | Submit rent receipts promptly every month |
Failing to provide the landlord’s PAN when required | An employer cannot claim HRA exemption on the full rent | Provide PAN if annual rent exceeds ₹1,00,000 |
Claiming HRA without paying rent | HRA exemption gets rejected by the tax authorities | Only claim an exemption if you pay rent regularly |
Incorrect calculation of the exempt amount | Paying more tax than necessary | Use the correct formula and verify calculations |
Not updating the rental agreement details | Documentation mismatch risks disallowance | Keep rental agreements current and shared |
Conclusion
Calculating House Rent Allowance (HRA) correctly is essential for salaried employees to maximise their tax savings. By understanding key factors such as basic salary, rent paid, and city of residence, one can determine the exempt portion of HRA under the Income Tax Act.
Following a systematic approach and submitting the necessary documents ensures a smooth claiming of HRA exemption. Accurate calculation not only reduces taxable income but also helps in better financial planning.
FAQ’s
1. What components are needed to calculate the HRA exemption?
Basic salary, actual HRA received, rent paid, and city of residence are needed to calculate the exempt portion of HRA.
2. How does the city of residence affect HRA calculation?
If you live in a metro city, 50% of your basic salary is considered; in non-metro cities, it’s 40% for HRA exemption.
3. Can I claim HRA exemption without paying rent?
No, paying rent is mandatory to claim the HRA exemption. If you live in your own house, the HRA exemption is not applicable.
4. What is the formula to calculate taxable HRA?
Taxable HRA = Actual HRA received – Minimum of (a) Rent paid minus 10% of basic salary, (b) 50%/40% of basic salary, or (c) Actual HRA.
5. What documents are required to claim HRA exemption?
Rent receipts, landlord’s PAN (if rent > ₹1,00,000 yearly), rental agreement, and employee identity proof are typically required.
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LoansJagat Team
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