If you are a salaried person you may claim House Rent Allowance or HRA from your employer to reimburse the amount of rent you pay towards your rented accommodation. This rental allowance can be eligible for complete or partial tax exemption. This means that you can avail income tax benefit from your rental allowance. In recent times, people often prefer to stay in shared accommodations in metro cities with their friends and colleagues. You can still claim HRA benefits from your employer if you are sharing you are living in a shared flat. You can claim the exact share of the rent you pay as long as you submit a separate rent receipt from your landlord.
Compute Rental Allowance with HRA Calculator
You can now compute the amount of house rental allowance using the HRA calculator. Most of the time the entire rental allowance does not receive tax exemption. The lowest of the following receives tax exemption:
- House Rent Allowance paid by the employer
- Actual rental amount paid minus 10 percent of your salary
- 50 percent of the base salary for individuals residing in metropolitan cities
- 40 percent of the base salary for individuals residing in non-metropolitan cities
Who Can Avail Rental Allowance?
This type of tax benefit is, usually, available to every salaried person who has to live in a rented accommodation and whose salary structure includes House Rent Allowance facility. No matter whether you live alone in a rental flat or you have a shared accommodation, you can claim this benefit. However, you cannot claim this tax benefit you are self-employed.
Calculation of HRA with an Example
Suppose, if the base salary of an individual is ₹50 thousand, rental amount paid for house is ₹16 thousand and the HRA paid by the employer is ₹1.2lakh. Let’s compute the amount of HRA exemption that can be received by the person:
|HRA paid by the employer||₹1,20,000|
|Actual Rental Amount – 10% of Salary = ₹16,000*12 – 10% of (₹50,000*12)||₹1,32.000|
|50% of Base Salary = 50% of (₹50,000*12)||₹3,00,000|
So, according to the above HRA exemption rule, the lowest of the above amounts will qualify for HRA exemption. That means HRA exemption amount would be ₹ 1.2lakh. This benefit is available as long as you live in a rented flat.
- House Rent Allowance can only be availed on the submission of your house rent receipts, or
- If you submit the rental agreement papers of the house with the owner of the house.
- Do not forget to produce a copy of the PAN card of the house owner to your employer in case you pay more than ₹1lakh for house rent per year.
How to Calculate HRA for Shared Apartment?
If you live in a shared apartment with your friend and both of you receive rental allowance from your employers, it is better to split the total rent of the house between you two. In this way you save more income tax together. The computation of house rent will work on the same principal for each of you provided each of you could produce separate receipt of the house rent payment to your employer.
Income tax department of India provides online HRA calculator for easy and quick rental allowance calculation at the official website of Income Tax department. You can calculate rental benefit in 5-steps using online HRA Calculator:
- Visit the official website of IT department at ‘www.incometaxindia.gov.in’.
- Select the ‘Tax Payer Services’ and then click on ‘House Rent Allowance Calculator’ option.
- This will open a new page where you need to enter the details asked about your salary.
- Enter correct information in the given fields.
- Click on the ‘Calculate’ button to calculate the rental allowance.
Claim Rules for Rental allowance
If you are a salaried person and have rental allowance facility in your pay structure, here are a few important rules that you should know before claiming HRA:
- The amount you pay towards your rental accommodation cannot exceed 50 percent of your basic pay.
- An individual cannot claim the entire amount of rent paid.
- You can avail income tax benefit on house rent and avail home loan tax benefit at the same time.
- Similar HRA benefits can be availed by an individual for shared rental accommodation provided you produce separate house rent receipts to your employer.
- HRA benefits can be received also if you live with your parents’ house and pay rent to them. All you need to produce is the rental receipts to your employer. However, this benefit is not available if you want to pay rental fee to your husband/wife.
- If you pay rent more than ₹ 1lakh annually to your house owner, you need to produce the PAN card copy to your employer while claiming for HRA.
- If you pay rent to an NRI house owner, you need to subtract 30 percent tax from original rental amount and declare it while filing the HRA claim.