How​‍​‌‍​‍‌​‍​‌‍​‍‌ to Calculate House Rent Allowance (HRA) Under Section 10(13A)

A proper understanding of the way to calculate the exemption is a must to get the utmost of tax benefits.

Steps to Calculate HRA Exemption?

You are allowed an exemption which should be the minimum of these three amounts:

1.Actual HRA Received: The cash allowance facility part provided by your employer.

2.Rent Paid Minus 10% of Salary: So the rent you pay, less 10% of your salary (basics + Dearness allowance).

3.Percentage of Salary Based on City:

50% of salary if you live in a metro city (Delhi, Mumbai, Kolkata, Chennai).

40% of salary if you live in a non-metro city.

Your salary for the purpose of calculation will be the sum of basic plus dearness allowance (if provided) and commission if calculated as a fixed percentage of turnover.

Step-by-Step Example

Let's say you live in Mumbai (metro city) and have following details:

Basic Salary + DA: Rs. 35,000 per month

HRA Received: Rs. 12,000 per month

Rent Paid: Rs. 15,000 per month

Calculation:

50% of Salary = 50% × Rs. 35,000 = Rs. 17,500

Rent Paid minus 10% of Salary = Rs. 15,000 - (10% × Rs. 35,000) = Rs. 15,000 - Rs. 3,500 = Rs. 11,500

Actual HRA received = Rs. 12,000

Your exempted HRA amount is the smallest among these three figures = Rs. 11,500. Hence, the remaining Rs. 500 will be taxable.

Knowing the method to determine your HRA allowance according to Section 10(13A) is a good way of legally paying less tax. Make sure to keep all your documents in order and claim the highest possible exemption to take full advantage of your salary ​‍​‌‍​‍‌​‍​‌‍​‍‌structure.