This is a most common question that comes up in mind when you see the HRA component in your salary and want to maximise tax benefit. Well, there are three rules which determine the cap on the HRA tax exemption that you would get.
The exemption is capped to the least of follwowing three values:
- Actual HRA received during the financial year.
- 50% of BASIC salary in case of residential accommodation taken on rent is situated in a METRO city (Only Mumbai, Kolkata, Delhi or Chennai) and 40% of BASIC salary in Non-metro cities.
- Rent paid in excess of 10% of BASIC salary. i.e Excess Of Rent = Rent Paid - 10% of Basic
The tax exemption that you get is not always equal to the HRA allowance that you receive as part of your salary. The maximum exemption limit is decided after calculating the the values in above mentioned points and the least of them is what you get exempted from tax.
Now the million dollar question is that how much rent declaration is sufficient to get the maximum tax exemption.
We have created a
simple Calculator to calculate optimum rent for maximum tax exemption limit which takes care of all the above points and gives you the optimum value that should be paid as rent.
Paying more rent than this value would not give any juice in Tax exemption but anything below this value will certaqinly be a missed opportunity in saving tax.
Please remember that you need to enter Basic salary, HRA received and the City in which you live as mandatory fields to arrive at the RENT amount.
The analysis panel just below the calculator shows the recommendations which can help save tax and hence increase take home pay. The optimum RENT for maximum tax exemption is also shown as part of this analysis.
If you do not see any recommendation for optimum rent, then most probably your total tax outgo is zero. In that case, you need not even worry about claiming HRA exemption.
Example:
If you stay in Delhi (Rented House) and have the following salary structure with Rs. 7750 per month as your HRA allowance, then you should pay at least Rs. 9300 as rent to maximise your tax exemption. Anything below Rs. 9300 per month will be a lost opportunity to save tax and anything above this amount will not add any juice in tax exemption.
