Is It Fair for Companies to Have Different HRA Rates for New and Old Employees?

Dear All,

I have a query regarding HRA. Can a company have two different HRA percentages among staff? The company has recently changed the HRA percentages. They have kept the HRA as it was previously for the recent joiners (less than a year in the organization), whereas they have changed the HRA for the older employees and also the new joiners. Is it acceptable?

Regards,
Pratima

Hi!

Yes, an employer can keep different HRA rates in the same establishment once he pays a higher percentage than the minimum HRA fixed by statute. In Maharashtra, we have the House Rent Allowance Act. According to it, an employer has to pay a minimum of 5% HRA on (Basic+DA) or the consolidated basic salary. However, we have 3 different HRA percentages.

I think HRA depends on which type of city it is, like A-class city, A1 class city, B-class city, and many more factors.

Here is a small article which I am sharing with you:

When you are calculating HRA for tax exemption, you take into consideration four aspects which include salary, HRA received, the actual rent paid, and where you reside, i.e. if it is a metro or non-metro. If these aspects remain constant throughout the year, then tax exemption is calculated as a whole annually. If this is subject to change, such as a rent hike or a shift in residence, then it is calculated on a monthly basis.

The place of residence is significant in HRA calculation. For a metro, the tax exemption for HRA is 50% of the basic salary, while for non-metros, it is 40% of the basic salary.

Please let us know if you need any more information or do a search on this site as there are already many articles on it.

Hi,

I agree with Ajay; in an organization, HRA can vary for employees based on their location. For example, a company in Gurgaon may provide 40% of the basic salary as HRA to an employee residing in Gurgaon, while offering 50% of the basic salary as HRA to an employee living in Delhi. However, concerning your question, it should not be determined by employee experience.

Hi Pratima,

The basic rule is, if the basic salary is up to Rs. 5,000/- OR Rs. 5,000/-, then HRA should be 40% of the basic salary. If the basic salary is more than Rs. 5,000/-, then HRA should be 50% of the basic salary.

Regards,
Vikas

Dear Sunil, Ajay, Vikas, and Stepintojob,

Thanks so much for the inputs. I really appreciate all the help. I did check the site before posting the question, but there weren't any articles on the different slabs within an organization.

Our company has just revised the percentage for HRA, and the employees are all working in the same location (about 10). Employees who have joined in the last year still fall under the previous slab. The newer joiners receive the revised percentage, as do the older ones. However, employees with less than a year in the organization remain in the prior slab. It really looked uneven to me, so I posed the question.

Thanks again for the help.

Regards,
Pratima

Hi,

Can anyone tell me what percentage should be fixed as a basic salary? Is this percentage based on CTC or any other factor? Is it standard to include HRA as a part of the salary structure?

Please reply.

Thanks in advance.

I do not think that the HRA can be differentiated based on experience. It is purely based on the city where the individual is residing.

Dear Vikas,

Whose rule is this? State Govt./Central Govt.? Or any legislation? Or your own rule?

Your employee strength is very small, and probably you do not have standard rules and procedures in place.

Generally, the salary structure for employees in the same grade should be uniform, and their HRA percentage should also be the same.

The HRA percentage can vary for different grades or according to the nature of the job and responsibilities. For example, the HRA for Officers may be 30%, while for Clerks/Assistants, it could be 20%. However, it is expected that uniformity in HRA percentage is maintained within specific categories of Officers and Clerks/Assistants.

Dear Sunil, Ajay, Vikas, and Stepintojob, thank you so much for the inputs. I really appreciate all the help. I did check the site before posting the question, but there weren't any articles on the different slabs within an organization.

Our company has just revised the percentage for HRA, and all employees are working in the same location (about 10). Employees who have joined in the last year are under the previous slab. New joiners receive the revised percentage, as do the older employees. However, those employees with less than a year in the organization fall under the previous slab. It seemed uneven to me, so I posed the question.

Thanks again for the help.

Regards,
Pratima

I am currently studying HR and need your help on a topic I am confused about. Can the HRA be any percentage of the basic/gross salary? I mean, can an employer pay, say, 10% or maybe 15% of the gross salary as HRA, or does it have to be a minimum of 40 percent of basic pay for non-metros and 50 percent for metros?

I am so confused on this, so please help. Hoping for a reply.

In the CTC regime, the HRA can vary based on employees' preferences to save tax, subject to a ceiling of 50% of basic + DA in metros and 40% in non-metros.