All the working people must aware with the term House Rent Allowance (HRA). It is part of your salary package which your employer provides. As per income tax rule in India, you can claim for HRA exemption on the amount that you pay for your accommodation. However, income tax department have set a limit for HRA exemption as per your salary structure.
Many people who are reading this article are not aware of the method to calculate their HRA exempt. There is a general rule many organizations are using in India to calculate the HRA exemption of their employees. This rule basically comprises of three conditions:
- Actual House Rent Allowance (HRA) received by the employee.
- Excess of rent paid for accommodation over 10% of the salary.
- 50% of the salary for the person living in metro cities and 40% of the salary for the person living in non-metro cities.
Least of above three is takes for HRA exemption. Let us understand it with the help of an example;
Ram have a basic salary of Rs 12000 and HRA of Rs. 6000. He pay an amount of Rs 5000 as rent. In this case, HRA exemption can be calculated as:
- Rs. 6000
- 5000 – 1200 = Rs 3800
- Rs. 6000 for metro cities and Rs 4800 for non-metro cities.
Least of above three is Rs 3800. So, Ram will get an exemption of Rs 3800 per month on his rent paid for accommodation.