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Is it mandatory to give HRA to employees? Is it mandatory to keep basic salary as 40% of gross?
From India, Mumbai
Hi Seena,
It is not mandatory to provide HRA as a separate component to employees. But to provide the advantage of tax exemption for the employee and to make the salary stack more attractive in order to attract good talent, it is good to provide HRA in the stack.
HRA or house rent allowance in metro cities is fixed at 50% of the basic salary and at 40% of the basic salary in non-metro cities. Even if you fix the HRA at a higher percentage of the basic salary, it is still permissible, but the employee would not have any use with it because the tax exemption would be calculated based only the 50% and 40% percentage limits mentioned. The rest of the HRA would be considered taxable.
If we assume that you are not providing any HRA component, then while filing for income tax returns, the employee can still provide rent or accommodation receipts stating that a part of the taxable income was used for accommodation purposes and then get a refund. Sometimes, this can be a long process for the employee.
But providing an HRA from the employer's side avoids this inconvenience and that is why most companies provide an HRA component as part of the salary stack.

From India, Bengaluru
There are certain States in India where House Rent Allowance Act is a State Act. In WB there is HRA Act to pay minimum 5% HRA on Basic and DA. Please check the same at your State. Probably at Maharashtra there may be 5% minimum HRA. There is no limit on higher % of HRA. Obviously there are certain facilities under IT Act for those who are staying at rental accommodation.
S K Bandyopadhyay ( Howrah,WB)
+91 98310 81531

From India, New Delhi
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