House Rent Allowance or HRA is a very common term among almost all salaried employees, generally a benefit provided by every employer to their employees. This is also a very common and most used income tax exemption option people love to avail. But HRA is not for every salaried employee. In case you are staying in a rented accommodation then only you will be able to avail this House Rent Allowance benefit. If you work for a small organisation and drawing a very small salary, then your employer may not provide any HRA benefits and there could be many such scenarios. But in this article we will try to learn how to calculate HRA for a salaried employee from his/her payslip.
HRA Limit for Income Tax Exemption as Per Rules
Your HRA or House rent allowance will be computed from below 3 calculations. And whichever amount is lowest will be considered as your eligible HRA exemption amount.
- The amount received as the HRA from the employer.
- Actual rent paid less 10% of the basic salary.
- 50% of the basic salary if staying in a metro city and 40% in a non-metro city.
Steps To Calculate HRA from Your Salary Slip
Let’s take an example to calculate the HRA of an employee who is fetching Rs 25,000 as salary/month. Assume that the basic salary of the employee is 15,000 and the monthly rent paid by the employee is Rs 10,000. By default the allowable HRA benefit from employer is Rs 8,000 only.
Now we calculate the three scenarios:
- Amount received as HRA from employer = Rs. 8,000 X 12(months) = Rs. 96,000
- Actual rent paid less 10% of basic = (Rs. 10,000 X 12) – Rs. 18,000 = Rs. 1,02,000
- 50% of basic salary since he lives in a metro = Rs. 90,000
Before proceeding further, check out the latest Income Tax Exemption Slab for AY 2016-17. So, as per the HRA rules, the person will be allowed get house rent exemption up to Rs 90,000 only.
In this case employee can directly submit the HRA claim without quoting house owners PAN number. The rule here is, if you are paying an annual rent more than Rs 1,00,000, then you have to quote the PAN number of house owner or submit a declaration signed by your house owner in case he/she don’t have a PAN number.
So, how much HRA benefit you are getting from your employer and how much you are able to get income tax exemption? You can easily use the HRA benefit and get a good income tax exemption by declaring in section 80C in case you have not done investment to save income tax.
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