HRA Exemption: Almost every employed person finds it challenging to file an income tax return (ITR) as soon as the first quarter of a financial year concludes or to declare potential savings for the entire year in their office at the start of the year, as they often lack detailed knowledge about these matters and rules. However, a timely declaration of savings can not only result in significant income tax savings but also improve your household expense planning for the entire year.
The Income Tax Act contains numerous sections, such as Section 80C, Section 80D, and Section 80E, that allow for significant income tax savings on expenses and investments. Those who live in rented houses make such declarations. For those working in a rented house but dreaming of their own house, House Rent Allowance, i.e., HRA, really helps in saving a lot of income tax. Remember that the rules require you to notify the employer at the right time and place.
Another problem with obtaining HRA exemption is that most employed individuals lack the necessary knowledge. Typically, an employed individual lacks knowledge about how to obtain HRA exemption. RA exemption. Therefore, we are disseminating this information today to support those who hold employment.
Who can get an HRA exemption, and how? Understanding who qualifies for the income tax exemption is critical to obtaining the HRA exemption. Keep in mind that the HRA exemption is only available to individuals who receive HRA (House Rent Allowance) as part of their salary. In addition, the employed person’s rent-paying house cannot be in his name.
What is the rule for calculating the HRA exemption? Section 10(13A) of the Income Tax Act grants HRA exemption to salaried persons. Any salaried person receives income tax exemption on the smallest of three amounts: (1) 50 percent of their basic salary, (2) the amount they receive as HRA, or (3) the amount of rent they actually pay after deducting 10 percent of their basic salary.
Who can receive the maximum HRA exemption? We have created a chart to illustrate the amount of HRA exemption an individual can receive based on their salary or house rent. This chart was created today. This chart in PDF format shows examples of six salaried people who get ₹25000, ₹50000, ₹50000, ₹50000, ₹ 75000, and ₹100000 as basic salary every month, respectively. Next, we assumed that these people also get 50% of their basic salary as HRA every month, and they actually pay ₹12500, ₹20000, ₹25000, ₹30000, ₹ 40000, and ₹ 45000, respectively, as house rent per month.
How to calculate HRA Exemption If the basic salary is ₹25000
Now, read the chart and understand: The first person who gets a basic salary of ₹25,000 gets ₹12,500 as HRA, and he pays the same amount as house rent every month. Now let’s calculate: Half of this person’s basic salary, that is 50 percent, becomes ₹12500, which is the first amount in the calculation. This same person gets ₹12500 as HRA in his salary, which is the second amount. Once we subtract 10 percent of the basic salary from the actual rent this person pays, we arrive at the third amount, ₹100,000.
Given that ₹100,000 is the smallest of these three amounts, the rules grant this individual an HRA exemption of ₹100,000 per month or ₹100,000 annually. This means that they will deduct ₹100,000 from their taxable income when calculating income tax. Now broadly, if this person pays tax under the maximum slab of income tax, then he will be able to save ₹37440 due to HRA Exemption (this amount of income tax saving includes income tax of ₹36400 and 4 percent cess, i.e., ₹1440).
If the basic salary is ₹50000
Similarly, the second person in the PDF chart receives ₹50000 as a basic salary and ₹25000 as an HRA. Each month, the same person pays ₹20,000 in house rent. Currently, this individual earns ₹25000 as their basic salary, receives ₹25000 in HRA, and deducts 10% of their basic salary from the rent they pay, resulting in a total of ₹15000. Therefore, the smallest amount for this individual is ₹15,000, which qualifies him for an HRA exemption of ₹15,000 per month or ₹180,000 per year. This exemption will result in a savings of ₹56,160, which includes income tax and cess.
If the house rents for ₹25000 or ₹30000, together, we will look at the third and fourth people in the PDF chart. Both of these employed people get a basic salary of ₹50000 and an HRA of ₹25000, but both of them pay ₹25000 and ₹30000, respectively, every month as house rent. These two individuals will receive a basic salary of 50% and an HRA of ₹25000. However, after subtracting 10% of their basic salary from their house rent, they will receive ₹20000 and ₹25000, respectively. Both of them will have to calculate the annual HRA exemption based on these two amounts, which will be ₹240000 and ₹300000, respectively, resulting in both being able to save ₹74880 in income tax.
and the basic salary is ₹75,000.
The fifth person in our PDF chart earns ₹75,000 in basic salary per month and ₹3750 in HRA. If this person pays ₹4000 house rent per month, then half of his basic salary is ₹3750, HRA is ₹3750, and after deducting 10% of his basic salary from the rent amount, we get ₹3250. Hence, this person will be able to get an HRA exemption of ₹3250 per month or ₹3000 per year, resulting in ₹1216 in annual income tax savings.
If the base salary is ₹100,000, our chart’s final example features a person receiving a basic salary of ₹100,000 per month. The same person gets ₹50000 every month as HRA. This person also pays ₹45,000 in house rent every month. According to our chart, this person will have three amounts: ₹50000, ₹50000, and ₹35000. The smallest of these three amounts is ₹35000, so this person will get an HRA exemption of ₹4000 annually, with which he can save ₹131040 in income tax in the whole year.
Now, let’s discuss some crucial aspects of the HRA exemption.
Those who wish to avail this benefit, commonly known as HRA Exemption or HRA Rebate, should remember that if you are paying more than ₹100,000 annually (i.e., ₹833 per month) as house rent, then you will have to get the PAN number (permanent account number) of the landlord (even if it is your wife or parents) registered (you can give a photocopy of the landlord’s PAN card to your office), and your landlord will also have to pay income tax on this amount received as rent. To qualify for HRA Exemption, you must keep and submit your house rent receipts to your office.”