HRA is the abbreviation for House Rent Allowance and is part of the remuneration package of salaried employees. It is for the people who live on rental accommodation – if you do, it can help you save up on taxes. If you are wondering about HRA in your salary, how it’s calculated, how to calculate, or what the formula is, you are at the right place. You have to do no more wondering, just getting the answers to all your unanswered questions. But before that, let’s take a step at a time and build upon that foundation.
What is House Rent Allowance in your Salary?
HRA is an important attribute of your salary, and it’s taxable under the Income Tax Act – so you’ve got to focus on it. According to the Income structure by the Government of India, your employer should be giving you HRA – which is apart from your basic salary and dearness Allowance. This way you can make up for your rented house or living space. You’ll see it on your income or salary slip. It can assist you with rented housing expenses, along with the tax outgo.
Well, if it makes it simpler. Let us look at the components included in an employee’s salary.
- Basic Salary
- Special Allowance
- Medical Expenses
How much will your HRA be?
There are certain criteria that determine your HRA, which would be the limit of your HRA exemption. It is also the lowest of the four factors mentioned below.
– The actual amount that is received as HRA from your employer.
– The rent that you’ve paid is reduced by 10% from the salary.
– 50% of your basic salary. If your residence is in the place of a metro location.
– 40% of your basic salary, in the case of your residence being in a non-metro location.
All of this included, adds up to your total earning.
Is this Allowance Taxable?
Could the answer be yes or no? Well, it is yes and no. HRA is exempted under Section 10(13A) of the Income Tax amateur, but still, the amount is determined to be a minimum of three months.
Not all of them get to claim tax benefits, and there are a particular group of people that do fit into this bracket. Find out if you are one of these with the column below
Who is Eligible for the Tax Benefits?
According to Section 10 (13A) from the Income Tax Act – if you match the criteria mentioned below, you claim deductions on taxes on HRA.
- If you are a salaried person
- If HRA is part of your salary
- If you live in a rented home or accommodation
- If you pay rent
- If the rental agreement is in your name
Benefits of HRA
There are several benefits to this aspect in your income – let’s get to know them.
- It reduces your taxable income
- Your HRA amount is deducted from gross salary only after the Income tax is charged on the rent net income. This turns out to be a perk to the individuals who are Eligible – by lowering their taxable income. Eventually, lowering the amount of tax they pay.
- It can be combined with your housing loan
- Income tax exemption can be claimed on House Rent and for a home loan repayment – isn’t that a good deal. It’s an additional advantage to the people who live on the rented property to repay the loan for another property because tax exemption can be claimed by combining both – loan and rent.
- It improves your affordability costs
- It reduces the burden on you, especially if you’ve moved from home to a new place. With rising costs of living every day, there are a lot of people who cannot manage these big changes. Your company can actually help you when you are Eligible by making rents costs even more affordable through HRA.
Are you thinking about how to calculate HRA in salary, don’t worry about it – we’ve got you covered.
Let’s understand how to calculate HRA from salary with an example, can we?
Rohit has a basic salary of Rs. 30,000 for a month and this is considered since there is no commission or dearness Allowance.
The HRA that is provided by the company is Rs. 13,000 for a month. Then, 10% of the annual basic salary comes to Rs. 36,000.
Now, let’s get to calculating the same in the following cases:
The amount that is received as HRA from the employer is Rs. 13,000*12 = Rs. 1,56,000.
The actual rent paid less 10% of the basic salary = Rs. 10,000*12 – Rs. 36,000 = Rs. 84,000.
50% of the basic salary, since he lives in a metro location = Rs. 1,80,000.
So, according to the calculation above – it is prominent that the HRA amount will be exempt from tax for Mr. Rohit, and will be Rs. 84,000 as it comes as the least of the three amounts.
All these calculations were made according to the principles of salary mentioned above. So, go on, start calculating yours.
Now, you’ve got your head around the concept of HRA in your salary. When you look at the HRS Section of your salary slip, you do not have to wonder or think about how it plays a part in your income, or if you aren’t enjoying this benefit, you can take the necessary moves.