HRA calculation formula for salaried individual


When you are calculating your Income Tax, below three different formulas are considered.
You are eligible to get the minimum amount from all three, as deduction.

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,
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 basic 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 taxable HRA amount for Sunitha per month will be Rs. 25,000 – 16,000 (available HRA deduction) = Rs. 9,000.

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  1. we are not receiving HRA from the employer. But we are paying house rent. whether we can avail tax benefit.please clarrify

  2. You can claim HRA deduction only if you receive HRA as part of your salary.