How HRA component affects the tax calculation and exemption?

Introduction

House Rent Allowance (HRA) is a salary component that helps employees save on taxes if they live in rented accommodation. The exempt amount is calculated based on a few specific rules.

This article explains how HRA is calculated in Keka and how both employees and admins can add rented residence details to claim the exemption.

How HRA Exemption is Calculated

The tax-exempt portion of HRA is the lowest of the following three amounts:

1. Location-based HRA

   • 50% of basic salary if you live in a metro city

   • 40% if you live in a non-metro city

2. Actual HRA received from the employer

3. Rent paid – 10% of basic salary

Example

Let’s say Pooja lives in a non-metro city. She earns:

• Basic salary: ₹40,000

• HRA received: ₹10,000

• Monthly rent paid: ₹12,000

We calculate the following:

So, the tax-exempt HRA will be the lowest of these: ₹8,000

View HRA Calculation for an Employee

To check the HRA calculation for a specific employee:

1. Search for the employee using the search bar → Open their profile

   

2. Go to the Finances tab → Click Pay

3. Select the Income Tax tab

   

4. Scroll to Section B - Taxable Income from All Heads

5. Under Less: Allowance Tax Exemption, find House Rent Allowance → Click View Details

   

This shows a breakdown of how the system calculated the HRA exemption based on the employee’s declarations.

How Employees Can Add a Rented Residence

1. Go to My Finances → Manage Tax

2. Select the Declarations tab → Go to House Property

3. Under I live in a rented residence, click Add Rented Residence

   

Step 1: Enter Rental Details

• From and To month

• Total rent paid

• Address

• City (choose from the dropdown)

• Click Next

  

Step 2: Enter Owner Details

• Owner's Name

• Owner’s Address

• PAN Number or Signed Declaration
  If annual rent > ₹1,00,000 and PAN is not available, upload a signed declaration.

Click Save to complete.

How Admins Can Add a Rented Residence for an Employee

1. Search for the employee → Open their profile

2. Go to Finances → Manage Tax

3. Click the Declarations tab → Open House Property

4. Under I live in a rented residence, click Add Rented Residence

   

Follow the same steps listed above (rental details → owner details → Save).

Once saved, HRA exemption will reflect automatically based on this information.