House Rent Allowance (HRA) – Meaning and Taxability

Meaning of House Rent Allowance (HRA):

House Rent Allowance

House rent allowance (HRA) is a pay component, employees receive from their employer to pay house related expenditure.

Taxability of HRA:

Every employee in India is entitled to claim HRA exemption if below mentioned conditions are met:

  • He/ she lives in a rented house &
  • Receives HRA as a pay component.

Exemption on HRA is arrived based on least of following three conditions:

  1. Actual HRA received.
  2. 40% (non – metro city) or 50% (metro city) of salary.
  3. Rent paid in excess of 10% of salary.

Salary here includes Basic salary and DA (If part of pay component)

Example of HRA exemption:

Sunil works in XYZ Ltd. He lives in a rented house in Mumbai for which he pays Rs. 5000 as rent. Following are the pay components of Sunil’s salary:

Basic10,000
Dearness Allowance2000
House Rent Allowance3500
Conveyance2500
Medical Allowance900
Special Allowance1000

 

Calculate the amount of HRA exemption for Sunil.

HRA Exemption for Sunil shall be least of following conditions:

  1. Actual HRA received:

3500

  1. 50% of salary (Basic + DA) as sunil lives in metro city:

(12,000 x 50)/100 = 6000

  1. Rent paid in excess of 10% of salary (Basic + DA):

5000 – 10% (12000) = 3800

So, amount for HRA exemption shall be 3500.

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