Confused About HRA Deductions? Let's Discuss How It's Calculated on Base Salary

Hi,

Can anyone out there help me to clear my query - "HRA is calculated on what percentage of the base salary" because I find varied deductions ranging from 30% to 50% in various salary slips of companies.

Liritta

Hi Himani,

It's generally 50% of the basic salary to reduce the tax liability of the employees. The percentage may vary depending on the company's policies.

Regards,
Himani

Hi Himani,

Thank you very much.

I am still not clear if companies could have discretion in fixing the HRA as it is related to the tax framework as well. Therefore, I don't think that companies can have sole discretion in deciding the HRA.

YOUR VALUABLE COMMENTS PLEASE...............

Thanks,
Liritta

House Rent Allowance is granted to enable the employee to meet the cost of housing requirements. As per the Income Tax Act of 1961, an amount equal to 50% of the salary is provided when the residential house is situated in Delhi, Kolkata, Chennai, or Mumbai, and 40% in the case of other towns and cities. House Rent Allowance received by the employee, the excess of rent paid over 10% of the salary, the least of the three, is exempted from income tax. Salary for this purpose means the basic pay plus DA if the terms of employment so provide.

Deepak Thukral
Chandigarh

Hi!!! Liritta
I hope this will clear your doubt.
There are certain rules that are to be taken into consideration to calculate the amount of HRA at the time of calculation of Tax exemption. HRA is a partly taxable allowance if after applying the three rules it is decided whether it is fully exempt from tax or apart of the HRA is to be taxed. The rules are given below.
1. Actual HRA Received that could be any % of the Basic salary
2. Rent paid – 10% of the Salary
3. 50% of the Salary in Metro / 40% in other cities
After applying these rules the amount which is the least among these three rules is exempt from tax. Generally 50% of Basic is decided as HRA so that the employee gets the maximum tax exemption.
Regards
Himani

Dear HR,

Greetings for the day :)

Calculations should be like this-

Basic = 50% of the salary in metro cities & 40% in non-metro cities
HRA = 50% of the Basic salary

I hope it can help you in resolving your query