Meaning of House Rent Allowance (HRA):
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:
- Actual HRA received.
- 40% (non – metro city) or 50% (metro city) of salary.
- 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:
|House Rent Allowance||3500|
Calculate the amount of HRA exemption for Sunil.
HRA Exemption for Sunil shall be least of following conditions:
- Actual HRA received:
- 50% of salary (Basic + DA) as sunil lives in metro city:
(12,000 x 50)/100 = 6000
- Rent paid in excess of 10% of salary (Basic + DA):
5000 – 10% (12000) = 3800
So, amount for HRA exemption shall be 3500.