HRA is a component of the salary package provided by employers to employees. It is specifically meant to cover the cost of housing expenses for employees who live in rented accommodations.
What is HRA?
The primary purpose of HRA is to provide financial assistance to employees for their rental expenses. It helps employees manage their housing costs, especially in urban areas with high rents.
Purpose of HRA
Calculation of HRA
HRA is calculated as a percentage of the employee's basic salary. The exact percentage varies depending on the city in which the employee resides. Typically, it ranges from 40% to 50% of the basic salary.
HRA Exemption Formula
The HRA exemption is the lowest of the following: actual HRA received, 50% of the basic salary (for metro cities) or 40% of the basic salary (for non-metro cities), and actual rent paid minus 10% of the basic salary.
Tax Benefits of HRA
HRA also offers tax benefits to employees. If an employee receives HRA and pays rent for a residential accommodation, they can claim tax exemptions under Section 10(13A) of the Income Tax Act.
Submission of Rent Receipts
To avail of HRA tax benefits, employees must submit rent receipts to their employer as proof of their rental expenses. Rent receipts should contain essential details such as the landlord's name, rental period, the amount paid, and the landlord's signature.
HRA Exemption Limit
The tax exemption on HRA is subject to certain limits. The exemption cannot exceed the actual HRA received, and it is limited to the amount spent on rent minus 10% of the basic salary.
HRA for Self-Owned House
It's important to note that HRA applies only if an employee stays in rented accommodation. HRA cannot be claimed if an employee lives in a self-owned house.
Declaration of HRA in Salary Structure
Employees must specify the amount of HRA they expect to receive when joining a new organization or during the annual salary declaration process. This declaration helps the employer calculate the salary structure accurately.
Kanakkupillai HRA Calculator
We at Kanakkupillai understand the importance of accurate calculations and strive to make the process seamless. To simplify this process, we bring you the online HRA Calculator.