Home >Money >Personal Finance >How to calculate HRA? Income tax benefits explained

House rent allowance or HRA is a key component of your salary. An employer pays HRA to the employee to provide for his rented accommodation. The Income Tax Act allows a salaried employee to claim HRA exemption under Section 10(13A). If an employee is living in his own house and does not pay rent, he cannot claim this exemption. But he can claim the HRA exemption if he is living with his parents and paying rent to them.

HRA exemption can be easily calculated as below:

The minimum of the following can be claimed as HRA exemption under Section 10(13A) of the Income Tax Act.

  • Actual HRA received from the employer
  • Actual rent paid minus 10% of the salary^
  • 50% of the salary if living in a metro city or 40% of the salary if living in a non-metro city

^Salary here means basic pay, dearness allowance (if included regarding employment), and commission on turnover based on fixed percentage. The salary is taken for the period the employee occupies the accommodation. The salary is considered on due basis.

The amount of HRA received from the employer after the exemption is added to the total salary and taxed as per the slab rate applicable to the employee.

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