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:

Basic 10,000
Dearness Allowance 2000
House Rent Allowance 3500
Conveyance 2500
Medical Allowance 900
Special Allowance 1000

 

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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