House Rent Allowance (HRA): Rules, Calculation, and Exemptions
House Rent Allowance (HRA) is a common component of a salaried individual's compensation package. It is an allowance given by an employer to help employees meet the cost of renting a home. A portion of this allowance can be claimed as tax-exempt under Section 10(13A) of the Income Tax Act.
Who Can Claim HRA Exemption?
- You must be a salaried employee.
- You must have an HRA component in your salary.
- You must live in rented accommodation.
- You must be able to provide rent receipts as proof.
Note: You cannot claim HRA exemption if you live in your own house or in a house where you don't pay rent.
How to Calculate HRA Exemption
The amount of HRA exemption you can claim is the minimum of the following three amounts:
- The actual HRA received from your employer.
- The actual rent paid minus 10% of your basic salary.
- 50% of your basic salary (if you live in a metro city like Delhi, Mumbai, Chennai, or Kolkata) OR 40% of your basic salary (for non-metro cities).
For this calculation, "salary" means Basic Salary + Dearness Allowance (if part of retirement benefits) + Commission (if a fixed percentage of turnover).
Example Calculation
Let's assume:
- Basic Salary: ₹50,000 per month
- Actual HRA Received: ₹20,000 per month
- Actual Rent Paid: ₹15,000 per month (in a non-metro city)
The exemption will be the minimum of:
- Actual HRA: ₹20,000
- Rent paid - 10% of Basic: ₹15,000 - (10% of ₹50,000) = ₹10,000
- 40% of Basic (non-metro): 40% of ₹50,000 = ₹20,000
The minimum of these is ₹10,000. So, ₹10,000 per month is exempt, and the remaining ₹10,000 is taxable.
Documents Required
To claim HRA, you must submit rent receipts to your employer. If the annual rent exceeds ₹1 lakh, you must also provide the PAN of your landlord.