What is House Rent Allowance? Calculation, Exemption Rules


Updates and details for What is House Rent Allowance? Calculation, Exemption Rules:

House Rent Allowance:

HRA or the House Rent Allowance is an amount paid by employers to employees as a part of their salaries. It provides employees with tax benefits for what they pay towards accommodations every year. The decision of how much HRA needs to be paid to the employee is made by the employer based on certain criteria like the salary and the city of residence. The house rent allowance is regulated by the provisions of Section 10(13A) of the IT Act.


How to Calculate HRA?

Your HRA calculation depends on four factors. These factors are as follows:


1) Salary
2) HRA component of salary
3) Rent paid
4) Location of your rented residence

Also Check: Income from House Property: Taxes, Deductions


Suppose Mr. Anil lives in New Delhi and earns a basic salary of Rs. 30,000 per month. The HRA component of his salary is Rs. 15,000 but the actual rent paid by him is Rs. 10,000. How much exemption can he get?


To solve this problem, first let us look at the factors affecting HRA calculation.


    a) Actual HRA received is (Rs. 15,000 x 12) = Rs. 1,80,000
    b) Actual rent paid (Rs. 10,000 x 12) – 10% of salary [(Rs. 30,000 x 12) x 10%] = Rs. 84,000
    c) 50% of basic salary [(Rs. 30,000 x 12) x 50%] = Rs. 1,80,000

Rs. 84,000 is the least among the above-obtained figures so Mr. Anil can get Rs. 84,000 exempt.

HRA Exemption Rules:

Tax exemption on HRA is least of the following:

1) Actual HRA received.
2) Actual rent paid reduced by 10% of salary.
3) 50% of basic salary if the taxpayer is living in a metro city.
4) 40% of basic salary if the taxpayer is living in a non-metro city.

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