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HRA: How is it calculated, and more
April 9, 2009
How is HRA calculated
To figure out how much HRA exemption you are eligible for, consider these three values which include:
a. The actual rent allowance the employer provides you as part of your salary,
b. the actual rent you pay for your house from which 10% of your basic pay is deducted, and
c. 50% of your basic salary when you reside in a metro or 40% if you reside in a non-metro.
The least value of these three values is allowed as tax exemption on your HRA. You can discuss restructuring your pay structure with your employer in order to avail the most of your HRA tax benefit.
Here is a sample illustration for your understanding:
Sunitha earns a basic salary of Rs 40,000 per month and rents an apartment in Delhi for Rs 20,000 per month (hence eligible for a 50% of the basic pay for HRA exemption). The actual HRA she receives is Rs 25,000.
These values are considered to find out her HRA tax exemption:
a. Actual HRA received, i.e. Rs 25,000,
b. 50% of the salary, i.e. Rs 20,000, and
c. Excess of rent paid over 10% of salary, i.e. Rs 20,000 - Rs 4,000 = Rs 16,000
The value considered for her actual HRA exemption will be the least value of the above figures. Hence, the net taxable HRA for Sunitha will be Rs 25,000 - 16,000 (available HRA deduction) = Rs 9,000.
Image: A Jet Airways plane approaches to land at Delhi airport. | Photograph: Desmond Boylan/Reuters
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