What is HRA?
HRA or House Rent Allowance is an allowance or the amount of money you get paid from your employer as a salary component. The HRA is added to an employee’s compensation in order to make him/her meet the cost of living expenses while accommodating in a rented house. It also comes with the benefits of taxation. In order to claim HRA exemption, the following four conditions need to be fulfilled:
1. You are a salaried employee
2. You live in rented accommodation
3. Your rent is more than 10% of your salary
4. HRA is a part of your salary
Note: If your annual rent exceeds Rs. 1 lakh, your landlord’s PAN would be required to claim the HRA exemption.
Subject to the population of the city, the HRA may vary. In a private organization set up, HRA is generally 50% of the basic in metropolitan cities and 40% of the salary in other cities. For central government employees, the rules are different for HRA. The HRA component depends largely on the population if the city, as follows:
Case 1: Population above 50 lakh
HRA- 30% of salary, minimum Rs. 5400
Case 2: Population between 5lakh to 50 lakh
HRA- 20% of the salary, minimum Rs. 3600
Case 3: Population below 5 lakh
HRA- 10% of the salary, minimum Rs. 1800
Note: the above rule should good when the dearness allowance exceeds 100% of the salary. In case the DA exceeds 50% of the salary, the HRA percentage is 27%, 18% and 9 respectively.
How to calculate HRA?
HRA is the amount that is paid as follows:
1. Actual rent paid – 10% of the basic
2. Actual HRA paid by the employer
3. As per city rules, 50% or 40% of the salary
Note: the actual HRA paid would be any of these, whichever is lowest.
Let us understand this with an example:
Aman is a salaried employee living in Gurgaon, who pays Rs. 11000 as rent per month. This is his salary structure:
Basic: Rs. 25000
HRA: Rs. 15000
Conveyance: Rs. 3000
Medical allowance: Rs. 1250
Special allowance: Rs. 2300
Total: Rs. 46,550
Calculating his HRA exemption:
1. Actual rent paid – 10% of the basic = 11000- (10% of 25000) = 11000 – 2500 = 8500
2. Actual HRA offered = Rs. 15000
3. 50% of the basic = 50% of 25000 = 12,500
Of the three cases, the minimum is the actual rent paid. Hence that would be considered for tax exemption from total taxable income.
FAQs related to HRA
Q1. How much HRA is tax exempted?
he least of the following will be exempted from your total taxable income:
1. 50% of basic salary if living in a metro city
2. 40% of basic salary if living in a non-metro city
3. Actual rent paid is less than 10% of the basic salary
4. Actual HRA paid by the employer
Q2. Can I claim HRA if my landlord is an NRI?
You must pay the rent after deducting TDS if your landlord is an NRI.
Q3. Is deduction on home loan and HRA exemption allowed simultaneously?
Yes. You can claim both things.
Q4. When do I need my landlords PAN details?
If the total rent paid in a year exceeds Rs. 1 lakh, you will need your landlord’s PAN details.