Can I Claim HRA for Two Houses in India: Calculate HRA
Updated on : April 24, 2023 - 3 p.m. 17 min read.
House Rent Allowance or HRA for short is an allowance given by employers to their employees to help them pay their rent. It's like a little pocket of extra cash that helps you afford a roof over your head! For those of us who rent a house HRA can be a real lifesaver.
HRA is significant for taxpayers because it can help reduce their taxable income which means they have to pay less tax to the government. It's like getting a discount on your tax bill just for renting a house! So if you're someone who lives in a rented house you definitely want to make sure you're claiming your HRA to save some money.
What is HRA and How HRA is Calculated?
In simple terms HRA is an allowance that your employer provides to help you pay your rent. The amount of HRA you receive is usually a percentage of your basic salary but it can vary depending on factors like the city you live in and the amount of rent you actually pay.
Your salary plays a big role in determining your HRA. The higher your salary, the higher your HRA is likely to be. This is because HRA is usually calculated as a percentage of your basic salary. So, if you have a higher salary, you're likely to receive a higher HRA.
The city you live in can also impact your HRA. If you live in a metropolitan area with a higher cost of living you're likely to receive a higher HRA to help you cover your higher rent. On the other hand if you live in a smaller city or town your HRA may be lower because the cost of living is generally lower.
Finally the actual rent you pay is a key factor in determining your HRA. Your employer can only provide you with an HRA up to a certain percentage of your salary and this percentage is usually based on the actual rent you pay. So if you pay a higher rent you're likely to receive a higher HRA.
Different methods of calculating HRA
Alright folks it's time for a crash course in HRA calculation methods. There are three main ways that your HRA can be calculated depending on where you live and how much rent you pay.
- First: we have the actual rent paid method. This is pretty straightforward - your employer will calculate your HRA based on the actual amount of rent you pay each month. So, if you're shelling out big bucks for a swanky apartment you could be in for a nice HRA payout.
- Second: we have the 50% of basic salary method. This one applies to folks living in metro cities where the cost of living is sky-high. If you're living in one of these pricey places your HRA will be calculated as 50% of your basic salary. It's like getting a little extra bonus just for surviving in an expensive city!
- Finally: for those of us living in non-metro cities there's the 40% of basic salary method. This one is a little less generous than the 50% method but still better than nothing If you're living outside of a metro area your HRA will be calculated as 40% of your basic salary.
These are just general guidelines and the exact amount of your HRA will depend on your specific salary, rent and city of residence. But hey every little bit helps right?
Examples of HRA calculation using each method
Here are examples of HRA calculation using each of the three methods:
- Actual rent paid method: Let's say you live in Mumbai and your monthly rent is Rs. 20,000. Your basic salary is Rs. 50,000 per month. Your employer agrees to pay 50% of your basic salary as HRA. In this case your HRA would be calculated as follows: HRA = Actual rent paid - 10% of basic salary = Rs. 20,000 - Rs. 5,000 (10% of Rs. 50,000) = Rs. 15,000
- 50% of basic salary method: Let's say you work in Delhi and your basic salary is Rs. 1,00,000 per month. Your employer agrees to pay 50% of your basic salary as HRA. In this case your HRA would be calculated as follows: HRA = 50% of basic salary = Rs. 50,000
- 40% of basic salary method: Let's say you live in Jaipur and your basic salary is Rs. 75,000 per month. Your employer agrees to pay 40% of your basic salary as HRA. In this case your HRA would be calculated as follows: HRA = 40% of basic salary = Rs. 30,000
Remember these are just examples and your actual HRA calculation may vary based on your specific salary, rent and city of residence. But hopefully these examples give you a better understanding of how HRA is calculated using each method
Can I Claim HRA for Two Houses in India?
To claim House Rent Allowance (HRA) for two houses in India, you need to meet certain conditions. According to the Income Tax Act, you can claim HRA for two houses if you fulfill the following criteria:
- House Rental Agreement: You must have separate rental agreements for both houses.
- Actual Rent Payment: You should be paying actual rent for both houses. If you own one of the houses, you cannot claim HRA for it.
- Stay at Different Locations: The two houses should be located in different cities. If both houses are in the same city, you cannot claim HRA for both.
- Employment at Different Places: You should have employment in both cities where the houses are located. You should be able to justify the need for two houses due to employment reasons.
Assuming you fulfill the above conditions, here's how you can calculate the HRA for two houses:
- Calculate HRA for each house separately: a. Determine the least of the following three amounts for each house:
- Actual rent paid minus 10% of salary
- 50% of the salary (for metropolitan cities) or 40% of the salary (for non-metropolitan cities)
- Actual HRA received from your employer b. Calculate the total of the above amounts for each house.
- Claiming HRA: a. You can claim the HRA for both houses as long as it does not exceed the total HRA received from your employer. b. If the total HRA received from your employer is lower than the total HRA calculated for both houses, you can claim only up to the received amount.
"Clarification on Claiming HRA for Two Houses in India"
Oh, it seems the maze is a little less complicated now! The Central Board of Direct Taxes (CBDT) issued a circular (CIRCULAR NO. 21/2016) in 2016 that sheds some light on the matter of claiming HRA for two houses in India.
According to the circular it is possible to claim HRA for two houses if certain conditions are met. Firstly you must actually be paying rent for both houses - this seems like common sense but it's important to mention. Secondly the houses must be in different cities so if you're renting two houses in the same city you're out of luck. Lastly the total rent paid for both houses should exceed 10% of your salary.
Now you might be thinking "Finally, some clarity!" But hold on just a moment - this is the government we're talking about so of course there are some caveats. The circular states that the exemption for the second house cannot exceed the exemption for the first house. So if your rent for the first house is lower you can't claim a higher exemption for the second house.
It's worth noting that this circular is not a law - it's just a clarification from the tax authorities. But it does provide some much-needed guidance on the matter of claiming HRA for two houses in India.
How Much HRA Can You Claim?
The maximum limit for HRA exemption under Section 10(13A) of the Income Tax Act, 1961 is the minimum of the following three amounts:
- Actual HRA received from your employer.
- 50% of your salary if you live in a metro city (i.e. Mumbai, Delhi, Chennai, Kolkata).
- 40% of your salary if you live in a non-metro city.
It's important to note that the amount of HRA exemption will depend on various factors such as your actual rent paid, salary and city of residence. If the actual rent paid is less than 10% of your salary the HRA exemption will be limited to 10% of your salary. Additionally if you are living in a house owned by yourself no HRA exemption can be claimed.
If your monthly salary is Rs. 50,000 and you live in Mumbai your HRA exemption will be the minimum of the following:
- Actual HRA received from your employer say Rs. 20,000.
- 50% of your salary which is Rs. 25,000.
- Actual rent paid minus 10% of your salary say Rs. 15,000 - (10% of Rs. 50,000 = Rs. 5,000) = Rs. 10,000.
In this case the HRA exemption will be limited to Rs. 10,000 since it is the minimum of the three amounts.
In another scenario
if you live in a non-metro city and your monthly salary is Rs. 40,000 with an HRA component of Rs. 12,000 the HRA exemption will be calculated as:
- Actual HRA received = Rs. 12,000
- 50% of basic salary for metro cities = not applicable as you live in a non-metro city
- 40% of basic salary for non-metro cities = Rs. 16,000 (40% of Rs. 40,000)
Therefore the HRA exemption in this case will be Rs. 12,000 as it is the minimum of the above three amounts.
HRA is a sweet deal for renters in India. It's calculated based on factors like your salary, city and rent. CBDT has cleared up the confusion around claiming HRA for two houses. Remember your exemption is the smallest of actual HRA 50% of basic salary for metros or 40% for non-metros. Follow the rules and keep records to avoid tax troubles. If in doubt talk to a tax expert. So, claim that HRA and save some dough
Q: Who is eligible for HRA?
A: Anyone who receives HRA as a part of their salary package and pays rent for a residential accommodation is eligible to claim HRA.
Q: What documents do I need to submit to claim HRA?
A: You need to submit a rent agreement, rent receipts and a declaration stating that you are paying rent for the house.
Q: How is HRA taxed?
A: HRA is taxable under the head 'Income from Salary'. However you can claim a deduction for the HRA received under Section 10(13A) of the Income Tax Act.
Q: Can I claim HRA if I live with my parents?
A: Sorry buddy if you live with your parents and they own the house you cannot claim HRA. Unless of course you can convince your parents to charge you rent.
Q: Can I claim HRA for a house in my spouse's name?
A: Only if you can prove that you are paying rent for the house and it is not owned by you or any of your family members.
Q: Can I claim HRA for two houses?
A: No you can only claim HRA for one house that you are currently living in. Unless you have the power to be in two places at the same time in which case you might want to consider a career in the superhero business.
Q: How much HRA can I claim?
A: The amount of HRA that you can claim depends on your salary the city you live in and the actual rent paid. You can claim the minimum of the following three amounts: actual HRA received 50% of basic salary for metro cities and 40% of basic salary for non-metro cities.
HRA can be a great relief for renters, but it's important to understand the rules and regulations before claiming it. Don't worry with a little bit of research and some basic math skills you'll be a pro at HRA in no time!