Know how to calculate your HRA before filing ITR

If you are a salaried employee then you will get House Rent Allowance (HRA). This is the main part of the salary. But not many employees know how it helps in saving tax. Let us tell you how you can calculate your HRA and claim tax exemption before filing Income Tax Return (ITR).

HRA is exempted under section 10 (13A) of the Income Tax Act. The total taxable income of the employee is calculated by deducting HRA from the total income. The amount of HRA you get from the company is not completely tax free. In this, the benefit of HRA tax exemption is up to 50 percent of the basic salary of metro city and 40 percent of the basic salary of non-metro city residents. This benefit is also available if 10 percent of the annual income is paid as rent.

How to calculate HRA
Suppose a person’s monthly basil salary is Rs 15,000 and he gets HRA of Rs 7,000 and pays rent of Rs 8,400 for accommodation in a metro city.

  • Actual HRA received by the employee = Rs.84000 (7000 X 12)
  • 50% of Basic Salary (Metro City) = Rs.90,000 (15,000X12 = 50% of Rs.1,80,000)
  • Rent paid in excess of 10% of annual salary = Rs 82,800 (Rs 1,00,800 * – (10% of Rs 1,80,000)) *8400X12 = 100,800
  • Accordingly, the employee will get tax exemption of Rs 82,800 out of Rs 84000 received as employer HRA. The employee will have to pay tax on the balance amount of Rs 1200

Documents required to avail HRA benefits
HRA exemption can be availed only on submission of rent receipt or rent agreement with the landlord. If the annual rent paid is more than Rs 1,00,000, then the employee has to provide the PAN number of the landlord to the employer to get the tax benefit.

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