What is House Rent Allowance (HRA) and how it is calculated?

This is an allowance being provided by the company (Employer) to the staffs (Employee) for the purpose of accommodating the house on rent. This is a proportionate part of the annual salary. The HRA tax benefits are only applicable to those who stay in a rented house.

To claim HRA: Below criteria’s must be full filled. The least amount of the below three will be exempted from HRA

  • An employee must have an HRA allowances in salary package.
  • Actual rent paid minus 10% of the basic salary ( Basic + DA  )
  • Staying in a metro city 50% of the basic salary or 40% if staying in a non metro city.

Let’s go by an example:

  • Basic Salary (Monthly) –Rs 30,000
  • HRA per month:            –Rs 8000
  • DA:                                 –Nil
  • Monthly Rent:               –Rs 11000
  • House rent in a non metro city.

 Actual HRA is Rs 8000

40% of salary is Rs 12000 (DA –Nil)

Actual rent paid Rs 7000 – 10% of {Rs 30000 + 0} Rs 3000 = Rs 4000  

Here, Rs 4000 is the least amount out of above three and will be exempted from HRA. The rest amount (Rs 8000- Rs 4000) = Rs 4000 / per month is taxable.

  • One cannot claim if living in their own house
  • If the employee has a home loan but stays in another nearby city owing some genuine reasons can claim HRA and eligible under home loan income tax slabs to claim deductions on interests.
  • Original rent receipts are mandatory to claim HRA
  • Rent paid below Rs 3000, rent receipts are not required.
  • If the landlord is an NRI then a declaration must be there to deduct 30% tax from the rent amount paid to the land lord.
What is House Rent Allowance (HRA) and how it is calculated?
What is House Rent Allowance (HRA) and how it is calculated? 1

This is an allowance being provided by the company (Employer) to the staffs (Employee) for the purpose of accommodating the house on rent. This is a propor

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