Understanding House Rent Allowance: What's the Maximum Limit You Can Claim?

Hi, what is the maximum limit of House Rent Allowance?

Kind regards,
Arun Kumar.

In metro cities, HRA is a maximum of 50% of Basic, and in non-metros, it is a maximum of 40% of Basic.

Thank you.

You mean HRA (allowance) or HRA (exemption) for exemption. It is the least of:

1. Actual HRA received
2. 50% of basic (if in a metro) / 40% of basic (if in a non-metro)
3. Rent paid minus 10% of basic

Basic here means Basic + DA

Ensure there is a single line break between paragraphs.

Though there is no limit for HRA, it should be fixed to provide maximum benefit to employees within the exemption on HRA under Section 10 of the Income Tax Act. The relevant provisions under the IT Act, along with examples, are as follows:

HRA Exemption Criteria

The minimum of the following is available as an exemption from the employee's earnings:
- The actual HRA received from your employer
- The actual rent paid by you for the house, minus 10% of your salary (including basic + dearness allowance, if applicable)
- 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 consider a hypothetical case or evaluate with an example. Consider the Salary Components as follows: Basic: Rs. 15,000, Dearness Allowance (DA) or other allowances Rs. 5,000, and HRA: Rs. 9,000, making a total salary of Rs. 29,000. Let the actual rent paid be: Rs. 10,000. You live in Mumbai (considered a Metro in Income Tax Computation).

Understanding the Rule

1. The actual HRA received from the employer is Rs. 9,000.
2. The actual rent paid for the house minus 10% of the salary (excluding HRA Component) would be Rs. 10,000 – 10% of (Rs. 15,000 + Rs. 5,000) = Rs. 10,000 – Rs. 2,000 = Rs. 8,000.
3. Fifty percent (50%) of your basic salary, which in this case is 50% of Rs. 15,000 = Rs. 7,500.

The minimum amount out of 1, 2, and 3 is Rs. 7,500. Therefore, the amount of HRA exempt from tax is Rs. 7,500 per month. The remaining HRA amount of Rs. 1,500 (Actual HRA received Rs. 9,000 minus exempt HRA Rs. 7,500 = Rs. 1,500) would be added to your taxable income.

House Rent Allowance (HRA)

• For Metro Cities: 50% of the Basic or Basic + D.A.
• For Non-Metro Cities: 40% of Basic or Basic + D.A.

Hope it's clear to you.

As per my knowledge, HRA cannot exceed more than 50% of Basic.

Experts, your views?

Regards,
Shaikh

Hi, though there is no limit for HRA, it should be fixed to give maximum benefit to employees as far as exemption on HRA is permitted under Section 10 of the Income Tax Act. The relevant provisions under the IT Act, with examples, are reproduced:

The minimum of the following is available as an exemption from an employee's earnings:
- The actual HRA received from your employer
- OR
- The actual rent paid by you for the house, minus 10% of your salary (this includes basic + dearness allowance, if any)
- OR
- 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 us consider a hypothetical case or evaluate with an example. Consider the salary components as follows:
- Basic: Rs. 15,000
- Dear Allowance (DA) or other allowances: Rs. 5,000
- HRA: Rs. 9,000

So, a total salary of Rs. 29,000. Let the actual rent paid be Rs. 10,000. You live in Mumbai (it is a metro in Income Tax Computation; it is a metro otherwise too!).

Now, let us understand how the rule works:
1. The actual HRA received from the employer = This amount is Rs. 9,000.
2. The actual rent paid for the house minus 10% of the salary (excluding HRA component). This would be Rs. 10,000 – 10% of (Rs. 15,000 + Rs. 5,000) = Rs. 10,000 – Rs. 2,000 = Rs. 8,000.
3. Fifty percent (50%) of your basic salary. Since you live in a metro, this would be 50% of Rs. 15,000 = Rs. 7,500.

The minimum amount out of 1, 2, and 3 is Rs. 7,500. Therefore, the amount of HRA exempt from tax is Rs. 7,500 per month. The remaining HRA amount of Rs. 1,500 (Actual HRA received Rs. 9,000 minus exempt HRA Rs. 7,500 = Rs. 1,500) would be added to your taxable income.

Sir, in point 1 and point 3, wherever you mention salary or basic salary, it means (BASIC PAY + DA + DPA). So, your point 3 should be 50% of 20,000.

Kindly refer to:
HRA exemption Calculation monthly, yearly basis or period basis? | SIMPLE TAX INDIA-TDS RATE INCOME TAX RATE

HRA EXEMPTION CALCULATION - HOUSE RENT ALLOWANCE 10(13A) FAQ | SIMPLE TAX INDIA-TDS RATE INCOME TAX RATE