House Rent Allowance ( HRA)
Salaried individuals who live in a rented house can claim this exemption and bring down their taxes. HRA can be fully or partially exempt from tax.
The entire HRA received is not always fully exempt from tax. The least of the following three will be taken to exempt from tax:
- HRA received from an employer.
- Actual rent paid minus 10% of salary.
- 50% of basic salary for those living in metro cities and 40% of basic salary for those living in non-metro cities
The remainder of your HRA is added back to your taxable salary.Our HRA calculator can easily help you to calculate what portion of the HRA you receive from your employer is exempt from tax and how much is taxable.
You can understand better with the help of the following
Example: Sandeep lives in Delhi-
- His basic salary : Rs 30000/ month
- Rent he pays : Rs 12000/ month
- HRA received : Rs 15000/ month
The HRA exemption he would get would be the least of the following:
- HRA received = Rs 15000/-
- 12000- (10% of 30000) = 9000/-
- 50% of 30000= 15000/-
Least of the above is 9000/-.so
Taxable amount will be = HRA received – least of the above
Rs 6000/- = 15000-9000
If you don’t live in a rented premises but still get house rent allowance, the allowance will be fully taxable.
If you are given house rent allowance and live with parents, you can still get exemption on it by showing that you pay rent to your parents. To avail this exemption, your parents must be the owners of the house and they must show the rent you give as rental income in their income tax returns.