What is HRA Exemption?

House Rent Allowance (HRA) is an allowance paid to an employee to pay his house rent. If you are living in a rented house, you can claim for an exemption on a part of your HRA. This exemption is called HRA Exemption.

To calculate how much Income Tax you can save with HRA Exemption and to learn how to calculate, follow the steps below. We are using an Income Tax Calculator to show you how to calculate HRA Exemption.

Step 1: Open the Income Tax Calculator

Step 2: Fill in basic details

HRA Exemption

Step 3: Key in your salary details


Step 4: Declare your rent

HRA Exemption

Step 5: Calculate HRA Exemption

HRA Exemption

Step 6: Calculation Summary for HRA Exemption

As per your payslip, you are paid HRA of INR 384000.

Summary for HRA Exemption

The rent you paid over 10% of Basic Pay + DA + Commission is INR 144000.

Income Tax HRA Exemption

And 40% of Basic Pay + DA + Commission comes to INR 384000. If you are living in a metro city this will be 50% instead of 40%.

Income Tax HRA Exemption

The least of the three is calculated as your HRA exemption.

Income Tax HRA Exemption

So, as per the calculation, HRA exemption is INR 144000.

Income Tax HRA Exemption

Step 7: What if you move to a more expensive rented house?

Assume you are moving to a new house with rent of INR 30000. Let’s see what change it makes to your HRA exemption. Let’s make that change in the rent declaration.

HRA Declaration

Now, let’s compute the tax again.

Compute the tax

Your HRA exemption earlier was INR 144000. And now, the HRA exemption with a higher rent is INR 264000.

So, if you move to a more expensive rented house, HRA exemption will help you pay up to 30% of the increase in rent.

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The income tax calculator helps you understand the tax calculation process and also helps you save tax by letting you experiment your investment declarations. The income tax calculator advises you on how to save maximum tax.