HRA – exemption and calculation

House Rent Allowance (HRA)

Important component of salary structure and is given by employer to meet the expenses of a rented house/accommodation taken by employee.

HRA ranges from 40% – 60% of basic salary.

–          HRA is 40% of basic salary – Non metro cities

–          HRA is 50% of basic salary  – Metro Cities

HRA is subjected to Income tax deduction. In order to claim exemption on IT deduction on HRA , an employee must satisfy following conditions –

1. He must be staying in rented apartment
2. He must provide rent receipts to the employer.
3. The rented apartment must not be owned by the employee.

Calculation of exemption on HRA

The minimum of the following amount will be exempted from IT deduction on HRA.

1. Actual HRA received from employer.
2. Actual rent paid by employee minus 10% of salary(basic salary+ DA-Dearness Allowance)
3. 50% of salary (basic salary+DA) if employee lives in metro city and 40% of salary (basic salary+DA)  if employee lives in non-metro city.

The minimum of the above amount is deducted (minus) from the annual HRA and the resulting amount is subject to IT deduction.

EXAMPLE :

“A” stays in metro city. His salary structure is –

Break-up	Monthly (M)	Annual (M*12)
Basic	5000	60000
DA	2000	24000
HRA	2500	30000
Actual rent paid by X	2500	30000

Calculation

–          Actual HRA received = 30,000

–          Rent paid minus 10% of (basic+DA) = 30000-10% (84000)  = 30000 – 8400 = 21,600

–           50% of (basic salary+DA) = 50% of 84000 = 42,000

Exempted limit of HRA = 21,600

Balance  HRA amount = 30000 -21600 = 8400 will be included in gross salary for Income tax deduction .