How is HRA Calculated | House Rent Allowance Calculation Examples | FinCalC [VIDEO]

It's almost the end of FY 2018-19 and people are saving and investing in various Income Tax saving schemes. Popular saving schemes include PPF, ELSS, NPS, etc.

Apart from these popular schemes, we can also save Income Tax if we are staying in rented accommodation. House Rent Allowance is the crucial component that helps us in reducing our Income Tax Liability.

HRA or House Rent Allowance is the allowance provided by employers to employees to meet their House Rent Expenses. You can claim deduction by submitting the house rent receipts that you receive from your Landlord in order to save Income Tax and reduce your Income Tax Liability.

WATCH VIDEO:

Following are few things that you should know:

1. HRA is applicable only to people who stay in rented accommodation
2. HRA Calculation depends on your Basic Salary
3. PAN card of your landlord is required to be submitted if rent is greater than Rs.1,00,000 in a Financial year
4. You need to have the receipts of house rent paid before Calculating and claiming HRA

So these are some of the things you should know before you calculate your HRA and claim deduction.

The least amount of the following is considered to calculate your HRA for reduction in your Income Tax:

1. HRA received from your Employer

This is the HRA component that you receive from your employer every month. Annual HRA received from your employer will be considered.

2. Actual rent paid minus 10% of Annual Basic Salary

This is the formula used to calculate the second component. Annual Basic salary is considered in this case which you can get from your pay slips. Rent paid is the Annual rent paid.

3. 50%(Metro City) or 40%(Non-Metro City) of Basic Salary

50% of your Basic Salary if you are staying in metro city or 40% of your Basic Salary otherwise.

So the least of above three components will be considered for calculation of your HRA that will be exempted from Income Tax.

Watch above video to see the calculation process with the help of EXAMPLES.

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