Let’s understand the calculation of HRA with the help of an example.
HRA Exemption Calculation with Example
Example: Suppose Mr Pankaj lives in Mumbai and earns a basic salary of Rs. 40,000 per month. The HRA component of his salary is Rs. 20,000 but the actual rent paid by him is Rs. 12,000. How much exemption can he get?
Solution: To solve this problem, first let us look at the factors affecting HRA calculation.
Actual HRA received is (Rs. 20,000 x 12) = Rs. 2,40,000
Actual rent paid (Rs. 12,000 x 12) – 10% of salary [(Rs. 40,000 x 12) x 10%] = Rs. 96,000
50% of basic salary [(Rs. 40,000 x 12) x 50%] = Rs. 2,40,000
Rs. 96,000 is the least among the above obtained figures so Mr Pankaj can get Rs. 96,000 exempt.
Example: I stay in a rented apartment in Hyderabad, and my basic salary is Rs. 20,000. The total rent that I pay is Rs. 7,000 and my actual HRA is Rs. 10,000. How much tax can be exempted from this?
Solution: Since you live in a non-metro city, you will be allowed 40% of basic salary as HRA. To solve this problem, first, let us look at the factors affecting HRA calculation.
Actual HRA received is (Rs. 10,000 x 12) = Rs. 1,20,000
Actual rent paid (Rs. 7,000 x 12) – 10% of salary [(Rs. 20,000 x 12) x 10%] = Rs. 60,000
You will receive 40% of basic salary [(Rs. 20,000 x 12) x 40%] = Rs. 96,000
Rs. 60,000 is the least among the above obtained figures so you can get Rs. 60,000 exempt.
Frequently Asked Questions:
I’m staying in Pune city on a rental basis, but I have a flat in Talegaon, which I have given on rent. Since the flat that I own comes under Talegaon Grampanchayat (possession taken), these two places are considered to be two different cities. Can I claim exemption on interest on house property as well as on HRA?
Yes, you can claim both benefits.
I’ve received last year’s salary arrears. Can I include these arrears while claiming my HRA exemptions?
Salary of the relevant period, for which the exemption is calculated, is to be taken for calculating HRA exemption. That is, salary on due basis is to be taken and not the arrears, for HRA purposes.
I pay rent for my family staying in Delhi as well as for the apartment that I have rented for accommodation in Hyderabad, where I work. Can I claim HRA exemption for the rent that I pay for both accommodations.
No. As per Rule 2A, rent paid should only be considered for one house in which the assessee resides and pays rent for. Therefore, you will only be able to claim the rent for the house that you are residing, not on the house accommodated by your family.