When you receives salary slip, you can see one column showing HRA amount. Full form of HRA is house rent allowance. You can claim HRA exemption and save income tax on HRA received.

Know HRA exemption calculation with examples u/s 10 (13A):

Before I start, let’s see what you will learn from this post:

  1. HRA rules knowledge
  2. HRA calculation with 3 simple examples when there is change in salary, place or rent received.
  3. Proof to be produced while claiming HRA exemption.
  4. Other important facts with regards to HRA rules.

HRA is the amount received by employee to pay the house rent. This amount can be monthly or annual. This amount is taxable in salary head of income tax. To save tax on HRA received, you need to calim HRA exemption u/s 10 (13A).

  1. HRA received.
  2. Rent paid less 10% of the salary for relevant period.
  3. 50% of the salary if residential house is situated in Metro city – Mumbai, Chennai, Kolkatta and Delhi or 40% of salary for other places.

Salary for this purpose means basic salary, dearness allowance if terms of employment so provides, commission based on fixed percentage of turnover.

Important factors to be considered while claiming HRA tax exemption u/s 10 (13A):

  1. Salary
  2. Place of residence
  3. Rent paid
  4. Employment

HRA exemption computation :

Change in above factor has impact on HRA tax exemption. That’s why I have given three examples to explain how to calculate house rent allowance exemption.

Example 1:

Manoj receives salary for the year 2014-15. He resides at Rajkot.The data for salary is given below:

Particular

Amount (annual data)

Basic

2,00,000

DA ( included as per terms of employment)

1,00,000

Bonus

    50,000

House rent allowance (HRA)

     24,000  (2,000 P.M.)

Rent paid during the year

     36,000 (3,000 P.M.)

Calculation of HRA exemption :

Salary for the purpose of HRA exemption calculation

Basic salary       2,00,000
Dearness allowance       1,00,000
Total        3,00,000
10% of salary            30,000
40% of salary         1,20,000
ParticularAmount
Actual HRA received24,000
Rent paid Less 10% of salary36,000 – 30,000 = 6,000
40% of salary1,20,000
Available exemption (lease of the above)6,000
Taxable HRA18,000

Exemption calculation when there is change in salary, location of job or employer.

Example 2 (Change in salary ) :

Salary details of Mr. John who is working at Porbandar for the year 2014-15 :

Particulars1/4/14-30/6/141/7/14- 31/3/15
Basic salary60,000 (20,000*3)2,25,000 ( 25,000*9)
Dearness allowance30,000 (10,000*3)1.08,000 (12,000*9)
Bonus12,00018,000
HRA received6,000 (2,000*3) 27,000 (3000*9)
Rent paid9,000 (3,000*3)    27,0000(3,000*9)

Salary for the purpose of HRA exemption calculation:

ParticularsFirst 3 monthsRemaining 9 months
Basic salary60,0002,25,000
DA30,0001,08,000
Total90,0003,33,000
10% of salary  9,000    33,300
40% of salary36,0001,33,200

Exemption u/s 10 (13A) as per HRA rules :

Particulars3 months9 months
Actual HRA received6,00027,000
Rent paid less 10% of salary0 (9,000-9,000)0 (27,000-33,300)
40% of salary36,0001,33,200
Exemption allowed (least of the above)00
Taxable House rent allowance6,00027,000

Example 3 (Change in job place and rent):

Following are details of salary of Mr. Pratik who is working with Zed Ltd. Mr. Pratik was trasferred from Jamnagar to Mumbai at 1/1/15. There is no change in salary of Mr. Pratik during the year.But there is change in rent paid.

Particulars1/4/14 –31/12/141/1/15 –31/3/15
Basic salary2,25,000 (25,000*9)75,000 (25,000*3)
DA90,000 (10,000*9)30,000(10,000*3)
HRA received18,000(2,000*9)6,000(2,000*3)
Rent paid36,000(4,000*9)15,000(5,000*3)

Salary calculation for the purpose of HRA exemption computation

Particulars9 months3 months
Basic salary2,25,00075,000
DA90,00030,000
Total for the purpose of Exemption computation3,15,0001,05,000
10% of salary31,50010,500
40% of salary for non metro city1,26,000
50% of salary for metro city52,500

House Rent Allowance exemption available:

ParticularsFirst 9 MonthsRemaining 3 Months
Actual HRA received18,0006,000
Rent paid less 10% of salary4,500 = 36,000 – 31,5004,500=15,000-10,500
40%/50% of salary as per residential house location1,26,00052,500
HRA exemption – least of the above4,5004,500
Taxable HRA = Actual HRA received – HRA exemption13,5001,500

Other important points:

  1. Proof to be produced to claim HRA: Produce receipt of rent paid to employer for TDS purpose. However, as per circular no. 8/ 2013.(page 25), receipt of rent is not mandatory when rent claim is less than Rs. 3000 for TDS purpose.Receipt should indicate place of residence, name of landlord, signature of landlord, rent paid details. Affix one rupee revenue stamp on receipt when rent paid is more than Rs. 5000 and get signature of landlord across it. If rent paid is more than Rs. 1 lakh, get PAN card no. of landlord as per circular no. 8/2013. If pan card is not available, give self declaration from landlord indicating name, address, rent paid details.
  2. House rent accommodation and rent free accommodation are different things. Rent free accommodation is residential space given by employer to employee without or with partial rent. Rent free accommodation is perquisites u/s    . Rent free accommodation is non monetary benefit and HRA is monetary benefit. Both are covered under salary head.
  3. Self employed person cannot avail HRA exemption benefit. But he can avail deduction u/s 80GG for rent paid during the year if he has not owned house.
  4. You can pay rent to your parents and claim it for HRA exemption. The parents should show the rent amount as income for income tax purpose. But you cannot claim HRA for rent paid to spouse.
  5. You can avail home loan interest and principal exemption simultaneously with HRA exemption.

HRA tax exemption saves your income tax and increases monthly salary. Use HRA rules mentioned above next time. If you have any query with regards to HRA exemption calculation, feel free to ask me through comments. Share this article on social media to encourage me to write more.