29 January 2011
The minimum of the following three is available as exemption from your income:
1. The actual HRA received from your employer
2. The actual rent paid by you for the house, minus 10% of your salary (this includes basic + dearness allowance, if any)
3. 50% of your basic salary (if you live in a metro) or 40% of your basic salary (if you live in a non-metro)
Let’s take the following example:
Basic:15,000
DA:5,000
HRA:9,000
Rent paid:10,000
You live in Mumbai.
Now let’s evaluate the above rules:
1. The actual HRA received from employer
This is9,000
2. The actual rent paid for the house, minus 10% of salary
This would be10,000 – 10% of (Rs. 15,000 +5,000) =10,000 –2,000 =8,000
3. 50% / 40% of your basic salary
Since you live in a metro, this would be 50% of15,000 =7,500.
The minimum of 1, 2 and 3 is7,500. Therefore, the amount of HRA exempt from tax is7,500 per month.
The remaining HRA amount of1,500 (Actual HRA received9,000 – exempt HRA7,500 =1,500) would be added to your income, and would be subject to income tax.
30 January 2011
If it is considered for calculating the retirement benefits, or say it is in the terms of employment, then only DA will be added in salary for the purpose of HRA.
If 60% of D A is considered for retirement benefits out of DA Rs. 10000/-, For HRA purpose only 6000/ will be added.
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