As per the Section 10(13A) of income tax act employees who are living in rented houses can get tax exemption. So House Rent Allowances are one of the major components of salary structure. Here you can find complete details on HRA calculation for AY 2018-19 with the example. When its come to HRA calculation there is no fixed percentage to calculate it but it should be at least 5% of the basic salary of the employee.
HRA Calculation For AY 2018-19:
How HRA Is Calculated
HRA is calculated on the basic salary of the employee. If the employee is getting dearness allowances then HRA will be calculated on Basic+DA.
HRA shouldn’t be less than 5%. In metro cities, 50% of the employee basic salary will be considered as house rent allowances and in non-metro cities, it is 40%.
If an employee basic salary is 12000 Rs per month and:
- if he lives in a metro city then the HRA will be 50% of 12000 i.e 6000 Rs Per Month.
- If the employee lives in a non-metro city then his HRA will be 40% of 12000 i.e 4800 Rs Per Month.
- Sometimes employers may have their own HRA percentage which should be above 5%. For example, if an employer considers 20% of basic as HRA then HRA of that particular employee will become 2400 Rs Per Month.
HRA For Central Government Employees:
For central government employees, house rent allowances will be paid as per the 7th pay commission. For them, cities are divided into Three categories X, Y and Z. Cities which have a population of 50 lakhs or above 50 lakhs will come under category X, cities which have a population of 5 lakhs to 50 lakhs will come under category Y, and cities with population less than 5 Lakhs will come under category Z.
Here is the table of HRA calculation percentages of central govt employees on basic + DA
How To Get Tax Exemption On HRA
Salaried employees can get tax exemption on HRA by mentioning the details of house rent allowances in investment declaration form submitted to the employer.
But the amount considered for tax exemption on HRA will be calculated in Three ways, and the least amount will be taken for tax exemption.
- Actual HRA fixed by the employer
- Actual rent paid minus 10% of basic salary
- 50% of basic salary in metro cities and 40% of basic in non-metro cities.
Example of HRA calculation for AY 2018- 19:
For an example if we consider the above employee who is getting a basic salary of 12000 per month and if he lives in a metro city like Hyderabad and pays a monthly rent of 6000 Rs then the amount considered for HRA tax exemption calculated in following Three methods and the least amount is taken for tax exemption.
- Actual HRA fixed by the employer, for example, if the employer pays 20% of basic then HRA is 2400 Rs month and 28000 per year
- Actual rent paid per annum minus 10% basic salary i.e (6000X12) – (10% of 12000 x 12 yrs) = 72000-24000 = 48000 Rs
- Hence he is living in a metro city 50% of basic salary is also considered so 50% of 12000= 6000 Rs, per annum it will be 72000 Rs
Above all the Three calculations 28000 is the least amount so that 28000 Rs will be considered for tax exemption on house rent allowances.
Points To Consider While HRA Calculation For AY 2018- 19
- Employees who are living in rented houses only able to claim tax exemption on HRA and if they are living in own houses then they are not eligible to claim HRA tax exemption.
- If the parents of employee live in a rented house then he can claim HRA, but this is not applicable in case of the spouse.
- If the annual rent paying is more than 1 lakh then employee need to submit PAN copy of the house owner, if house owner doesn’t have PAN then they need to take a declaration from the house owner with details of rent amount collecting in every month.
- If the monthly house rent is above 3000Rs then they need to submit rent receipts.
- Electrical charges and maintenance charges are not considered while calculating HRA tax exemption.