HRA Exemption - How to Calculate It

House Rent Allowance, or HRA, can reduce taxable salary for eligible salaried employees in India who live in rented accommodation. The exempt amount is the lowest of three values defined under income tax rules.

The three HRA exemption limits

HRA exemption is generally the least of actual HRA received, rent paid minus 10 percent of salary, or 50 percent of salary for metro cities and 40 percent for non-metro cities.

For this calculation, salary usually means basic salary plus dearness allowance where applicable. Always confirm the exact treatment with current tax rules or a qualified tax professional.

• Actual HRA received from employer.
• Annual rent paid minus 10 percent of salary.
• 50 percent of salary in metro cities or 40 percent in non-metro cities.

Example HRA calculation

Assume annual basic salary is 600,000, HRA received is 240,000, annual rent paid is 300,000, and the employee lives in a metro city.

The three values are 240,000; 300,000 - 60,000 = 240,000; and 50 percent of 600,000 = 300,000. The exempt HRA is the lowest value: 240,000.

Documents and practical checks

Employers commonly require rent receipts, landlord details, and sometimes a rent agreement. PAN details may be required when annual rent crosses specified thresholds.

HRA rules can change and individual salary structures vary. Treat calculators as planning tools, then verify with payroll or a tax advisor before filing.

Step-by-step summary

1. Find annual HRA received from your salary structure.
2. Calculate annual rent paid.
3. Calculate 10 percent of basic salary plus eligible DA.
4. Apply the metro or non-metro salary percentage limit.
5. Choose the lowest of the three eligible values.

Frequently asked questions