HRA Exemption Calculator
Taxable HRA:
What is an HRA Calculator?
Among a plethora of important financial tools allowed to be used by multiple websites, An HRA, or House Rent Allowance Calculator sounds a useful assessment tool to estimate the portion of HRA after tax-exempt as per the rules and guidelines of a particular country’s government.
This tool is majorly important for the salaried individuals as they know better about the House Rent Allowance. If you’re any far from this topic, HRA is just a component delivered by the companies or employers to the employees as a part of salary to stay in rented apartments or houses. Now, HRA is a clear topic, and all you need to know is about HRA Exemption.
In this case, whenever the word exemption gets combined, it becomes related to the Income Tax Act, which presently helps employees to decrease taxation partially on the HRA. Taxation is tolerable, but it sounds absurd if a part of your rental payments are also going in there; that’s how we see HRA Exemption.
In that way, the HRA Exemption Calculator keeps a track of the specific regulations and rules taken by the particular government for the house rent allowance. Basically, there are a few limits up to which the tax on HRA doesn’t get completely counted to be paid. All these things work on the basis of a few factors like the actual paid rent, residence location, and dearness allowance.
Once you have all these important details to be filled, assessment works in the backend with the HRA Exemption Calculator.
How Does the HRA Exemption Calculator Work?
The HRA Exemption calculator asks you to fill in all these details and assess the maximum amount of HRA which can legally be exempted from taxation. Again, consider that it works as per guidelines, so you must need to find a calculator based on a particular country’s guidelines to get helped with a wholly precise HRA Exemption eligibility.
Components of HRA Exemption Calculation
There are multiple components or parameters to put in the formulae of evaluating the HRA Exemption and only then you can get the accurate results. The actual calculation is so complex that no one wants to put multiple assessments and numbers on the paper to evaluate that. And even if you’re giving enough time, you can’t calculate the accurate results with a pen or paper.
Realistically, we need to go through three different calculations, including the first actual HRA received from employer this year; second through subtracting 10% of basic salary from Annual Rent; third contain half of the basis salary if living in a metro city, or 40% of it when living in a non-metro city. After assessing them, whichever is the minimum of three cases would be Exempt HRA.
This formula is developed in the backend of our tool to acknowledge you with the maximum tax-free amount as per you’re feeding the data. The major components in the way are the Actual HRA Received that we used in the first one, Monthly paid rent that we used in the second calculation, and the city of residence classification we assessed in the last. Let’s dig deeper:
Monthly Rent Paid
The rents you paid monthly are first required to be assessed per annum and once your calculations are cleared, you first need to put it numerically on the calculator field. This factor also legally plays an actual important role as it’s required to be furnished to the employer and income tax department before taking the first step.
Actual HRA Received
Once you have dealt with the HRA department and got acknowledged about the HRA amount you’re receiving in future, you can initialize the assessment. It’s the total amount that the employer paid you on an annual basis marked as the salary component and can easily be referred from your salary slips among the list of allowances.
City of Residence Classification
The residence classification also factors importantly when you are calculating the HRA Exemption in your case. In the older times, it was based on the location of your residence and worked uniquely for the different cities. But to keep it convenient, the government pitched it down to two options only; including Metro Cities and Non-Metro Cities. There is a 10% difference between exemptions for both unique kinds of cities.
How Is HRA TAXED?
HRA Taxation dashes are particularly unique for different jurisdictions and tax departments, but the process goes exactly the same. It’s not that you have to pay taxes on the complete HRA offered to you by employers, but a part which got taxed while applying the above components numerally.
Numbers can have the differences, and the actual way HRA is taxed is: Once you know about the HRA received by the employers, any portion of that amount which exceeds the calculated exemption limit when keeping track on the above three components is considered taxable HRA.
Only that portion should be stated when you’re filling your taxes while adding for the HRA taxes. If you’re finding the procedure complex with a pen and a paper, the HRA Exemption Calculator tool can help you with assessing all the components automatically.
How to Use the HRA Calculator?
HRA Exemption Calculator is an easy-to-use financial calculator that calls you to fill in the required details, which are all the components you may get through your salary slips. We have already talked above about the required components, and if you want to know the proper steps to find out HRA Exemption, they are all as follows:
1. First things first… Inscribe your basic annual salary on the initial field.
2. Now you need to fill in the actual HRA proffered to you by the employer on an annual basis. You can find this out in your older salary slips.
3. After you fill the HRA, you have to assess the annual rents you’re paying and fill them numerically on the next field. Remember, it needs to match your rent agreement for reference.
4. Fill-in if any dearness allowance is offered to you by the employer per annum. This field can also be dropped empty if you don’t get any.
5. Choose the city classification panel among Metro or Non-Metro City as per your residence.
6. That’s it! The Calculator will now assess the complete data fed by you and show you the calculated Exempted HRA and Taxable HRA in the bottom of the tool.
Whatever HRA Amount you’re seeing taxable on this window would be the one you’re finding for and you can go ahead filing the same amount in the report of Income Tax Department.
HRA Exemption vs. Home Loan Benefits: A Comparative Analysis
Most of the time, the multiple options in tremendous places make the assessment complex. In the similar way, we all have a debate for HRA Exemption vs. Home Loan Benefits. Keeping it as an important approach, we have pointed a few comparative analytical factors to understand the difference properly –
1. HRA Exemption benefits are linear and it helps you to reduce taxable income when claiming, whereas Home Loan benefits are exponential and can only be obtained after the whole tenure period of your loan. Here in home loan, interests and amortization qualify for tax deduction as you avail for HRA.
2. HRA doesn’t work on the properties that you own, or without a rental agreement. It only avails to cover rental expenses and you’re not going to get any rights on that property after any period, whereas the home loans create property assets over loan tenure period.
3. Home loan deductions totally depend on the case when you’re making repayments, whereas the HRA exemptions grow the same way you go renting that place or another.
4. There is absolutely no limit for HRA Exemptions on the basis of calculated components until you’re renting your apartment. However, the Home Loan deductions and tax reliefs only hinge on the loan amount and get stopped once it’s completely cleared.
Those were the only differences we found out between HRA Exemption and the Home Loan Benefits. Although, there are some people who look at conditions in a different way as you can also opt for both these exemptions if you look at it as profitable and affordable simultaneously.
In summary, we can come to the point that HRA delivers linear benefits, and Home Loans offer incremental benefits and lastly you have your own home which sounds as a durable saving and forming an asset. Now it’s your chance to choose between them as per your preferences.
Case Studies: Real-life Scenarios of HRA Exemption Calculation
There are two real life scenarios pitched by us to assist you acknowledge the role of HRA Exemption Calculation in a better way, with more component awareness, and how it actually works in different seats –
First Case: Salaried Employee in Metro City
Aman is a salaried individual living in a metro city Pune and working as a backend developer in Infosys India. He works for a basic annual salary of 7,20,000 INR, and rents an apartment near his office costing him approximately 4,20,000 INR annually. After these two components, he’s getting an HRA allowance of 1,20,000 INR annually from the employer within the salary.
When we do assess normally without a calculator, we can find out 27% of the total salary for being in a Metro Tier-1 city, i.e., 1,94,400 INR. The next calculation we can have is after subtracting 10% of annual salary from actual rental payments, i.e., 3,48,000(4,20,000-72,000). The smaller one is 1,94,400 which he can claim annually as HRA Exemption.
Second Case: Self-employed Professional Claiming HRA
Rakesh on the other hand is a self-employed professional working as a Content Writer for a company in Indore. This profession is making him a basic salary of 8,00,000 annually, where he rents an apartment for 12,000 INR monthly rent which assesses 1,44,000 annually.
As of now, Indore isn’t a metro city, and that’s why we can gain an exemption of up to 18% of the basic salary, i.e., 1,44,000.00 INR. The actual rent that he paid as per the rent agreement is also the same 1,44,000 and that can wholly be claimed as a tax exemption.
Frequently Asked Questions (FAQs)
What is HRA Exemption, and how does it work?
HRA is an abbreviation for House Rent Allowance, which allows the salaried employees to minimize their taxable income on the basis of the rent they paid exempted from HRA. It works through a few important components like the total monthly rent paid, total HRA allowed, and the residence location.
How can an HRA Exemption Calculator benefit me?
HRA Exemption Calculator would benefit you by having an extra edge in the Exemption calculations. You cannot make mistakes in such legit calculations, or there are penalties for the improper tax exemptions that you can get saved through by using the accuracy of this tool.
What are the key components of HRA Exemption calculation?
There are three key components of HRA Exemption calculation, including the actual HRA delivered to you by your employer, annual rent you’re paying as per rent agreements, and residence classification.
Can I claim HRA if I’m living with my parents?
For every moment when you have a rent agreement, you can claim the HRA. So even if you’re living with your parents and paying them rent, it’s suitable for exemption once you have the legal papers.
How do I ensure compliance with HRA tax regulations?
Ensuring compliance is really important as inaccurate details can be penalized, and that’s why you should hand the accurate information about the rent payments you’re making and the HRA details to your employer. In terms of calculations, you should have to figure out the exemption carefully with this tool and all the components.
Conclusion:
Among a diversity of invaluable financial tools, this was the in-depth factual information about the HRA Exemption tool. This tool would surely help out all the employers and professionals for determining the most portion they can save filling in taxes. It works exceptionally with the government guidelines and that’s what makes you trust it eternally.
You can keep all the numerals for assessment required for being the important components, including the annual rent, allowed HRA, and residence classification. It’ll simplify the hectic calculations and will estimate the perfect or error-free HRA Exemption.
After you fill in the numerals correctly, it’ll compute the exemption amount and simplify the compliance. Remember, false exemption claimers can be penalized, and for the same reason you’re required to be accurate with the results. Where there is a problem, there is a technical solution; as here we have the digital HRA Exemption Calculator.
