Basics of HRA
Individuals earning salary income, living in rented premises and having HRA as a component of salary are allowed to claim the benefit of House Rent Allowance. This can be partially or completely exempt from taxes. The allowance is for expenses related to rented accommodation.
Exemption Calculation
The exemption amount is least of the following amounts
- House Rent Allowance (HRA) received
- 50% of [Basic salary + DA] for those living in metro cities (40% for non-metros)
- Actual rent paid less 10% of salary
Points to remember
- If the employer does not provide you the component of HRA in your salary, then you can claim the deduction under Section 80GG of the Income Tax Act, 1961. For more details relating to this please find our article on Section 80GG
- If the rent paid on annual basis is more than Rs. 50,000 then you need to furnish the PAN of the landlord to your employer.
- For the purpose of HRA calculation, Metro cities include Delhi, Mumbai, Chennai and Kolkata.
Illustration
Mr. Anand, employed in Mumbai, has taken up an accommodation on rent for which he pays a monthly rent of Rs 20,000 during the Financial Year. He receives a Basic Salary of Rs 20,000 monthly along with Dearness Allowance of Rs 5,000, which forms a part of the salary. He also receives a HRA of Rs. 1,20,000 from his employer during the year.
Let us understand the HRA component that would be exempt from income tax during the year.
The HRA exemption would be least of the below stated values
| Sr. No. | Particulars | Amount (Rs.) | Amount (Rs.) |
| 1 | HRA Received | 1,20,000 | |
| 2 | Rent paid in excess of 10% of salary Rent paid (20,000*12) 10% of salary [(20,000+5,000)*12]*10% | 2,40,000 30,000 | 2,10,000 |
| 3 | 50% of Basic + D.A. [(20,000+5,000)*12]*50% Exempt HRA (Least of the above) | 1,50,000 1,20,000 |
Therefore, in the above example, the entire HRA received from the employer is exempt from income tax.