B. Earning Components | 3. House Rent Allowance
HRA (House Rent Allowance) is a key component of salary offered by employers to help employees meet rental housing expenses. It is especially beneficial for employees living in rented accommodation.
📊 HRA Calculation:
- 40% of Basic Salary for employees in non-metro cities
- 50% of Basic Salary for employees in metro cities (Mumbai, Delhi, Chennai, Kolkata) — subject to company policy
- Minimum 5% of Basic Salary as HRA is mandatory in salary structure (compliance requirement)
💼 HRA & Tax Exemption:
HRA is partially tax-exempt under Section 10(13A) of the Income Tax Act, provided the employee:
- Lives in rented accommodation
- Pays actual rent to a landlord
The tax-exempt portion of HRA is calculated as the least of the following:
- Actual HRA received from employer
- Rent paid minus 10% of Basic Salary (plus DA, if applicable)
- 50% of Basic (metro cities) or 40% (non-metro cities)
👉 Note:
If you live in your own house or do not pay rent, the entire HRA is taxable.
✅ Summary:
- HRA = 40% or 50% of Basic Salary (based on city)
- Minimum HRA = 5% of Basic Salary is mandatory
- Tax benefits apply only if you pay rent
- Higher HRA = Better Tax Savings, especially in metros
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