The date for filing income tax return is now 30 November 2020. If you are trying to save tax, then also know about how to save tax on HRA. HRA is the allowance that the company gives to the salaried class, but the government levies tax on it.
New Delhi: The date for filing income tax returns is now 30 November 2020. If you are trying to save tax, then also know about how to save tax on HRA. HRA is the allowance that the company gives to the salaried class, but the government levies tax on it. How can you save this tax, we are going to tell you.
According to the Income Tax Act, exemption on HRA is available under section 10 (13A). Total taxable income is calculated by subtracting HRA from total income. Keep in mind that if the employee of the company stays in his house or does not pay the rent of the house, then the amount received as HRA in his salary will come under the tax, meaning tax will have to be paid.
Now the question arises that how much tax can you save on HRA. Its calculation is very easy.
How to calculate tax exemption in HRA
1. How much HRA is in your salary
2. If you live in metro cities like Delhi, Mumbai, Kolkata, 50% of basic salary, 40% of salary if you live in non-metro
3. The amount left after deducting 10% of salary from the rent of the house actually paid
Whichever amount will be the lowest of these three, the tax exemption of HRA can be availed.
Now consider this as an example, so that you will know it better.
Suppose Mr. Ram earns 12 lakh rupees annually by living in Mumbai. His company gives him 3.60 lakh rupees as HRA. Mr. Ram spends 2 lakh rupees annually on rent. So now the calculation will be like this
1. Actual HRA got 3.6 lakh rupees
2. 50% of basic salary 50% of Rs. 12 lakhs = Rs. 6 lakhs
3. Rent paid – 10% of basic salary 2 lakhs – Rs 1.2 lakhs = 80 thousand rupees
In these three options you will see that after deducting 10 percent of the total basic salary from the number 3 i.e. the actual paid rent, an amount of Rs 80 thousand comes. Which is the least of the two options above.
Therefore, there will be a tax rebate of 80 thousand rupees on HRA.
Total HRA = 3.60 Lakh
HRA exemption = 80 thousand
Taxable HRA = 3.60 lakh – 80 thousand = 2.80 lakh
That is, you will have to pay tax on 2.80 lakhs, which will be according to your tax slab. There will be no tax on the remaining 80 thousand.
The tax benefit on HRA can be availed only if you have a rental receipt. If you have a rent agreement with the landlord, you can still take advantage of it. If you have paid rent of 15,000 rupees every month or more than one lakh rupees in a year, then it is necessary to give the PAN number of the landlord to get the rebate.
Some important things on HRA
1. Tax exemption can be granted only when the employee has paid the rent of the house in truth
2. Even if the employee has paid the rent to a member of his family, he will still get a rebate on HRA
3. If the employee is the owner of a house, but he lives in a rented house elsewhere, he can still get tax exemption on HRA.
4. If the company does not give HRA to the employee in salary and the employee lives in a rented house, then in such a situation, HRA will not be entitled to tax exemption.
5. In such case the employee can take deduction under section 80GG