Calculating HRA exemption accurately is not easy. To summarize, HRA exemption is calculated as the least of the following - The amount actually paid as HRA. Rent paid minus 10% of the basic salary. 50% of the basic salary if the rented accommodation is in a metro city, and 40% otherwise. These rules are simple enough, but it can get a little complicated when a payroll platform like Opfin tries to calculate the HRA exemption for the entire year.
To accurate calculate an employee’s take home salary, Opfin has to calculate several deductions like TDS, PF, ESI and Professional Tax. Of these, the TDS (tax deducted at source) is probably the trickiest since there are a lot of tax exemptions and deductions that are usually applicable. For example - HRA exemption Section 80C (Investments in ELSS funds, PPF, FD, ULIP etc.) Section 80CCD (Investments in NPS) Section 80D (Expenses towards medical insurance, preventive health checkup and other medical expenses) Section 80DD (Deduction for rehabilitation of handicapped dependent relative) Section 80E (Interest on Education Loan) Section 80G (Donations to charitable institutions) Section 24 (Home loan interest) Section 80EE (further tax benefits for first time home buyers) Managing all these deductions is a nightmare not just for the employees, but also for organizations since they are supposed to validate that all the deductions that an employee has applied for are actually valid.