What is House Rent Allowance (HRA)?
House Rent Allowance (HRA) is a crucial component of a salaried individual's paycheck. Employers provide HRA to assist employees with their accommodation expenses. The best part? Under Section 10(13A) of the Income Tax Act, 1961, you can claim tax exemption on your HRA, provided you live in a rented house and actually pay rent.
How is the HRA Exemption Calculated?
The Income Tax Department has laid down a specific rule for calculating the exempt portion of your HRA. The exemption allowed is the minimum of the following three conditions:
- Actual HRA Received: The exact HRA amount given by your employer.
- Rent Paid minus 10% of Basic Salary: Total rent paid by you minus 10% of your (Basic Salary + Dearness Allowance).
- City Limit:
- 50% of Basic Salary if you reside in a Metro city (Delhi, Mumbai, Chennai, or Kolkata).
- 40% of Basic Salary if you reside in any other Non-Metro city.
The Anivicus HRA Calculator runs this complex formula in the background instantly to tell you exactly how much of your HRA is tax-free and how much is taxable.
Important Rules for Claiming HRA
- Rent Agreement & Receipts: You must have a valid rent agreement and rent receipts to submit to your employer as proof of payment.
- PAN of Landlord: If your annual rent exceeds ₹1,00,000, it is mandatory to provide the PAN of your landlord to your employer to claim the exemption.
- Living in Own House: If you live in your own house or do not pay any rent, the entire HRA amount received from your employer is fully taxable.
- New Tax Regime: Please note that if you opt for the New Tax Regime (under section 115BAC), you cannot claim the HRA exemption. It is only available under the Old Tax Regime.