To calculate House Rent Allowance (HRA) for income tax returns in India, you need to consider the following factors:
1. Actual HRA received from your employer.
2. Rent paid for the accommodation in which you reside.
3. Salary income including basic salary, dearness allowance (if it is part of retirement benefits), and any other commission received.
The city of residence (metro or non-metro) since HRA calculation differs based on this.
The least of the following amounts is exempt from tax:
Actual HRA received.
50% of your salary if you are living in metro cities (Mumbai, Delhi, Kolkata, or Chennai), or 40% if living in non-metro cities.
Excess of rent paid annually over 10% of salary.
The formula for calculating HRA exemption is:
HRA Exemption = {Minimum of (Actual HRA received, 50%/40% of salary, Rent Paid - 10% of salary)}
Once you've calculated the exempt portion of HRA, the taxable portion will be added to your taxable salary.
Here's a step-by-step process to calculate HRA for income tax returns:
Determine the actual HRA received during the financial year from your salary slips or employer's records.
Calculate the total rent paid during the financial year.
Determine the least of the following:
1. Actual HRA received.
2. 50% (or 40% for non-metro cities) of your salary.
3. Rent paid minus 10% of salary.
Subtract the exempted portion (determined in step 3) from the actual HRA received. This will be your taxable HRA.
Add the taxable HRA to your taxable salary.
Report the taxable HRA along with your other income sources while filing your income tax returns.
Please note that you should retain proofs of rent payments and HRA receipts in case of any scrutiny by the Income Tax Department. Additionally, if you are a salaried individual, your employer usually calculates the HRA exemption and deducts TDS accordingly.
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