Usually, relocating to a new city involves you renting out an apartment. For some people, renting is an option even when they are in the same city but are starting their career. Fortunately, when you rent an apartment, employers provide support by reimbursing the amount. Let’s look at what this is.

101 Of House Rent Allowance:

Regulated by the provisions of Section 10(13A) of the IT Act, the House Rent Allowance (HRA) makes up a part of an employee’s salary. This amount paid by the employers is based on certain criteria like the basic salary, city of residence and so on. The basic benefits of HRA are the tax benefits you can claim in your income tax returns.

How To Calculate Your HRA Exemption

The tax exemption on your HRA is the least of the following.

• Actual annual HRA received from your employer

• Actual amount of rent you pay annually minus 10% of your annual salary

• 50% of your basic salary, if you live in a metro city

• 40% of your basic salary, if you live in a non-metro city

To get the maximum tax benefits on your salary, you can ask your employer to restructure your salary.

HRA Calculation With Example

Let’s say you live in a metro city and have a monthly basic salary of Rs 15,000. That makes it Rs 1,80,000 annually. You receive Rs 7000 as HRA every month, which makes it Rs 84,000 annually. But, the actual rent you pay is Rs 8,400 every month, making it Rs 1,00,800 annually. Let’s also assume that you have some other incomes and the tax rate applicable to your income is 20%.

To avail tax benefits, the least of the following annual amounts is exempted.

• Actual annual HRA received = Rs 84,000

• 50% of your basic salary as you live in a metro = Rs 90,000

• Actual amount of rent you pay annually minus 10% of your annual salary = Rs 82,800 (Rs 1,00,800 – Rs 18000)

In lieu of the above calculation, though you receive an annual HRA of Rs 84,000, only Rs 82,800 gets exempted from tax. The balance of Rs 1,200 is added to your income on which a tax of Rs 240 (20% tax slab) is payable.

HRA Claim Rules

Take a note of the following rules applicable for HRA claims.

• Your HRA can’t exceed more than 50% of your basic salary.

• You can’t claim for the total amount of rent you pay.

• You can avail tax benefits of HRA along with a home loan.

• You can also pay rent to your parents and collect a receipt for your HRA claim. However, you can’t do this with your spouse.

• If your rent exceeds Rs 1 lakh, you will need to submit your landlord’s PAN card details. In case, he/she doesn’t have one, they can provide a self-declaration.

• 30% tax from the rent amount is to be deducted by you in your landlord is an NRI.