Everyone wants to avoid paying unnecessary taxes and save more money. The government gives tax exemptions and deductions to help taxpayers get the most out of their income. One such tax benefit is the HRA exemption in income tax. However, not all your HRA is tax-free.

If you are wondering about how to calculate the HRA exemption amount, don’t fret. Read on to understand the HRA calculation with examples and use the HRA tax exemption calculator.

What is HRA? Who Can Avail of the Exemption?

HRA, or House Rent Allowance, is a part of the salary of employees, which is taxable under the Income Tax Act. However, an individual can claim deductions in taxes on HRA under a few conditions. All salaried employees living in rented accommodation can get tax benefits under this exemption.

But note that every financial year a salaried individual can either pay tax according to the old tax regime or opt for the new income tax regime, excluding tax deductions and exemptions (like HRA). As a result, if you choose the new income tax regime in FY 2023-24, you cannot claim an HRA tax exemption.

Additionally, you can get this benefit only if the HRA component is a part of your salary structure and you live in a rented place. Self-employed professionals cannot avail of this tax benefit.

Calculating HRA Exemption in Income Tax?

HRA exemption gets calculated according to Income Tax Rule 2A. Under it, the minimum of the following cases gets exempted from an employee’s salary under Section 10(13A).

• Actual HRA received by the employee
• Excess of rent paid yearly over 10% of annual salary
• 50% of salary if living in metro cities, or 40% for non-metro cities

As mentioned, the total amount you get from your employer as HRA or the total rent you pay in a year does not qualify for relief under the Income Tax Act. Here’s a look at how to calculate HRA exemption with examples.

Mr Ahuja lives in a rented apartment, working in a firm as a salaried employee in Delhi. The monthly rent of his apartment is Rs 10,000, and he gets Rs 12,000 HRA monthly. Here is his salary structure.

The amount of tax deduction is as under the previously-mentioned conditions:

• (Rent paid) – (10% of the basic salary) = Rs. 10,000 – (10% of Rs. 20,000) = Rs 8,000
• Actual HRA offered by the employer = Rs. 12,000
• 50% of the basic salary = 50% of Rs. 20,000 = Rs. 10,000

The minimum of the above three is the first case here. Hence, Mr Ahuja will get an HRA exemption of Rs 8,000 on his total taxable monthly income.

Conclusion

Now that you know to calculate HRA exemption in income tax, you can put it to best use to save taxes. You can use Income Tax Department’s or Fi Money’s HRA tax exemption calculator to get the exempted amount online without hassles. Besides, Fi's AI-powered Analyser offers valuable insights to help track your expenses to help you maximise your savings and investments, providing a 360-degree view of your money.

Frequently Asked Questions

1. How to calculate house rent allowance under Section 10 (13a)?

Section 10 (13A), rule number 2A of the Income Tax Act allows salaried individuals to get relief living in rented accommodation from tax. The employees can claim the exemption amount lowest of the three:

• 40% of the basic salary received anywhere in India (50% of the basic salary if an employee lives in Delhi, Kolkata, Mumbai, or Chennai)
• The HRA amount received by the employee
• The actual rent minus 10% of the basic salary

Note that you can claim whatever amount is the minimum out of these provisions for tax deductions.

2. What is the formula for calculating HRA?

You can use the below formula to calculate the lowest amount for HRA tax deductions

• Actual rent payment subtracting the 10% of the basic salary
• Exact HRA offered by the employer
• 50% of the basic salary*, if the employee resides in Delhi, Chennai, Mumbai, or Kolkata or 40% of the basic salary* when residing elsewhere in India

Please note that the basic salary* is the total of the basic salary, the dearness allowance and additional commissions, if any.