The Taxpayer and a Resident of India can check the HRA Calculation and the HRA exemptions here which are explained in detail. First of all, before looking about the calculation let us take a look on what is HRA and to how HRA is exempted to tax.
What is HRA?
HRA means House Rent Allowance. HRA is an amount given by the employer to his employees as a part of Salary to meet the expenses in connection with rent of the accommodation. House Rent Allowance is a benefit provided by the employer to his employee for his residential purpose. This HRA allowance is taxable under head ‘Income from Salaries’. House Rent Allowance is regulated by the provisions of Section 10(13A) of the Income Tax Act.
HRA allowance benefit is available only to the salaried individuals but no to the self-employed individuals. If the employee is living in rented accommodations then this exemption is available. House Rent Allowance cannot be claimed if the employee lives in his/ her own house. PAN Card details of the landlord must be submitted along with the HRA claims if the rent of the employee exceeds Rs. 1,00,000/-. HRA Calculation is given here in our site. The Assessee can get an example in which the calculation and exemptions are given below.
How to Calculate HRA from Basic Salary?
In the above paragraph, we have seen clearly about House Rent Allowance. Now let us take an example for calculating HRA Allowance from the Basic. Let us take the pay slip of ‘Mr. Ramesh’. He is staying in Karnataka and paying his House Rent Allowance of Rs. 10,000/- per month.
|Employee No: 3456||Name: Ramesh|
|Joining Date: 22/12/2012||PF No: KA/BA/02|
|Basic||Rs. 30,000/-||PF||Rs. 2,000/-|
|HRA||Rs. 13,000/-||Professional Tax||Rs. 200/-|
|Special Allowance||Rs. 3,000/-|
|Total Earnings||Rs. 54,250/-|
The least of following is exempted from tax,
- An amount equal to 50% of salary where residential house is situated at Bombay, Delhi, Calcutta, or Chennai and an amount equal to 40% of salary where residential house is situated at any other place.
- House Rent Allowance received by an employee.
- Excess of rent paid over 10% of salary.
These are following factors to which House Rent Allowances are Exempted
- Place of Residence
- Rent Paid
- HRA Received
Here you can check HRA Calculation and House Rent Allowance exemptions of income tax from Ramesh’s Salary.
- Since there is no Commission or Dearness Allowance the basic salary is fully considered as Rs. 30,000/-.
- HRA (House Rent Allowance) provided by the Company is Rs. 13,000/- per month is 10% of basic salary.
- 10% of Annual Basic Salary is Rs. 36,000/-.
Calculation of HRA by the 3 Scenarios is as follows:
- The Amount received as House Rent Allowance from employer = Rs. 13,000/- x 12 (months) = Rs. 1,56,000/-
- Actual rent paid less is then 10% of basic salary = (Rs. 10,000 x 12) – Rs. 36,000/- = Rs. 84,000/-
- 50% of basic salary since he lives in a metro = Rs. 1,80,000/-.
As considering the least from the 3 Scenarios, the House Rent Allowance amount which will be exempt from tax will be Rs. 84,000/-.
Faq’s on HRA Calculation
Q: Is there any maximum limit of percentage on basic pay can be considered in calculating HRA? If My Gross Salary Per Month is Rs. 1,00,000/- and I am paying Rs. 50,000/- per month as rent in this case, can i consider basic as Rs. 30000/- pm and HRA Rs. 70000/- pm ?
A: No limit for House Rent Allowance. But the limit is for exemption of HRA under section 10(10)The Assessee can consider the lower of following.
The Assessee can consider the lower of following
1. 50% of salary (if you paid the house rent in a metro city) otherwise 40% of salary.
2. HRA Received.
3. Rent Paid is 10% of salary.It salary include only Basic Salary+ DA (As per terms of salary) + Commission
It the salary includes only Basic Salary + DA (As per terms of salary) + Commission all other not include under salary for calculation of HRA.
As per one of the CA expect this answer is given. The Answer may vary according to another question but the formula may not change. So before filing the Income Tax Return consult your CA Expert so that you may not take a wrong step.