HRA Calculation
HRA is known as House Rent Allowance. It is an amount that is given by an employer to an employee as part of the salary. This allowance is given by the employer so that an employee can meet the cost of living in rented accommodation. HRA allows the employee to get the tax benefit on what they are spending as rent during the year.
Under what conditions, one can claim for HRA
- You stay in a rented accommodation
- When rent exceeds 10 percent of the salary
- When you are getting HRA as a part of the salary
In case, paying an annual rent of more than Rs 1 Lakh, then it is mandated to provide landlord’s PAN card details to get an HRA Exemption. If the Landlord does not have a PAN card in his name, then signed declaration can also be given. If none of the above documents are available, you may lose money in tax deduction.
The House Rent allowance differs from one city to another. HRA is 50% of the basic salary in metro cities and 40% of basic salary in non-metro cities for those working in privately-owned organizations subject to certain terms and conditions.
For Central Government employees, minimum and maximum HRA in different cities has been recently modified in July 2017 as per the recommendations of the 7th pay commission.
For this purpose, cities have been divided into three parts- X, Y,and Z.
| City Category | Population | HRA Calculation(in terms of Percentage) | Minimum HRA( in rupees) |
| X | Above 50 Lakh | 10% | 5400 |
| Y | 5 Lakh - 50 Lakh | 20% | 3600 |
| Z | Below 5 Lakh | 30% | 1800 |
The above case is when the Dearness Allowance (DA) crosses 100 percent of the salary. In case, it crosses 50 percent, the HRA percentage will be 27%, 18% and 9% for X, Y and Z cities, respectively.
Cities included in X Category - Delhi, Chennai, Bengaluru, Pune, Mumbai, Greater Mumbai, Kolkata, Hyderabad and Ahmedabad.
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Cities included in Y Category - Jabalpur, Kolhapur, Vasai-Virar City, Malegaon, Vijayawada, Warangal, Greater Visakhapatnam, Guntur, Nellore, Raipur, Rajkot, Jamnagar, Bhavnagar, Vadodara, Surat, Faridabad, Gurgaon, Srinagar, Jammu, Durg-Bhilai Nagar, Mysore, Gulbarga, Kozhikode, Kochi, Thiruvananthapuram, Thrissur, Malappuram, Kannur, Kollam, Gwalior, Indore, Bhopal, Jamshedpur, Dhanbad, Ranchi, Bokaro Steel City, Belgaum, Hubli-Dharwad, Mangalore, Dehradun, Moradabad, Meerut, Ghaziabad, Aligarh, Agra, Bareilly, Lucknow, Kanpur, Allahabad, Guwahati, Patna, Chandigarh, Nanded-Waghala, Sangli, Cuttack, Bhubaneswar, Raurkela, Amritsar, Jalandhar, Ludhiana, Puducherry, Bikaner, Tiruchirappalli, Madurai, Erode, Gorakhpur, Varanasi, Saharanpur, Noida, Firozabad, Jhansi, Jaipur, Jodhpur, Kota, Ajmer, Salem, Tirupur, Coimbatore, Amravati, Nagpur, Aurangabad, Nashik, Asansol, Siliguri, Durgapur, Ujjain, Bhiwandi and Solapur.
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Cities included in Z Category - Cities included in Z Category- Cities other than those mentioned above.
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What is the process to calculate HRA?
If we talk about HRA Calculation, the term ‘Salary’ refers to a total of the basic salary, dearness allowance and if any commissions received by an individual. For HRA Calculation for the tax deduction, the actual amount of HRA Exemption will be the lowest of these three:
- Actual rent paid minus 10% of the basic salary
- Actual HRA offered by the employer
- 50% or 40% of the basic salary, according to the city in which the person resides
Example
Let us consider the case of Person XYZ, a salaried employee living in a rented accommodation in Delhi for which he pays Rs 12,000 per month. The table below shows his salary structure-
| Salary Component | Amount |
| Basic | 23000 |
| HRA | 15000 |
| Conveyance | 3000 |
| Medical Allowance | 1250 |
| Special Allowance | 2300 |
| Total Salary | 44550 |
Putting this in the formula given above, we find that-
Actual rent paid minus 10% of the basic salary = 12,000 – (10% of 23,000) = 9,700
Actual HRA offered by the employer = 15,000
50% of the basic salary = 50% of 23,000 = 11,500
The least of the above three is the actual amount paid by XYZ as rent minus 10% of his basic salary. Hence, he will get an HRA exemption of Rs 9,700 from his taxable income.
Rules regarding HRA Exemption
House Rent allowance is given to almost all the salaried individuals by their employers. There are some cases in which tax exemption on HRA is not allowed. Case mentioned below:
- HRA is provided for bearing the cost of your rented accommodation, you cannot claim if living in a self-owned house.
- If you are living with your parents and produce a rent receipt in the name of your parents, you can claim HRA exemption. But your parents need to add the same amount of rent into their income at the time of filing Income Tax Returns.
- You cannot pay rent to your spouse and claim HRA deduction on it.
HRA and Home Loan Tax Benefits
Many are confused about whether they would be eligible to claim HRA deduction as well as tax deduction on home loan interest paid during the year. The regulations allow you to claim the two simultaneously.
