Employees living in hired (rented) houses. Sometimes the employer does not provide rent- free accommodation but instead makes a provision to pay some amount in cash, so that the employee may be compensated to some extent as far as rent is concerned. The amount of cash paid is known as House Rent Allowance. Out of the total H.R.A. received, an amount equal to the minimum of the following three items is exempted from tax u/s 10(13A) read with Rule 2A and balance, if any, will be added in the salary of the employee for tax purpose. The three items are
![House Remt Allowance [HRA] for Calculating Salary Income](Allowance for Salary.jpg "House Remt Allowance [HRA] for Calculating Salary Income")
Quantum of Exemption: Minimum of following three limits:
|
Mumbai / Kolkata / Delhi / Chennai |
Other Cities |
(i) |
Allowance actually Received |
Allowance actually Received |
(ii) |
Rent Paid in excess of 10% of Salary |
Rent Paid in excess of 10% of Salary |
(iii) |
50% of Salary |
40% of Salary |
Taxable HRA = Actual HRA received — Exempted amount
Note :
The exemption in respect of HRA is based upon the following factors:
(1) Salary
(2) Place of residence
(3) Rent paid
(4) HRA received.
Since there is a possibility of change in any of the above factors during the previous year, exemption for HRA should not always be calculated on annual basis. As long as there is no change in any of the above factors it can be calculated together for that period. Whenever there is a change in any of the above factors, it should be separately calculated till the next change. |
