Understanding HRA: Can Employers Set Any Percentage of Basic or Gross Salary?

Hello everyone. I am currently studying HR and need your help on a topic I am confused about. Can the HRA be any percent 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 about this, so please help. Hoping for a reply.

Understanding HRA Regulations and Determinants

Certain states have enacted laws on HRA, like Maharashtra, which prescribe 5% of the basic + DA. This is where one should look for guidance. The second domain to seek guidance is to understand how public sector undertakings determine the HRA for various classes of employees in their organization.

Alternatively, the ideal principle to adopt is to relate it to the average rental rates of accommodations of varying sizes prevailing at a particular place, as they may differ from metro to tier-II or III cities or towns. Thus, HRA varies from place to place, and the amount varies with the place, industry, and the employee's level and basic pay.

Therefore, you need to gather information about the prevailing rates of industries of your size and activity located in your region. There is no hard and fast rule.

Regards,
B. Saikumar
HR & Labour Law Advisor
Mumbai

Thank you, Saikumar ji, for your answer. It gets difficult for me to understand some topics as I am studying through correspondence. So, what I understand from your reply is that the HRA can be any percentage of the Basic. It all depends on the company, location, etc. So, a company can give whatever it wants as HRA. It could be 5% - 7% - 10% - 12% - 15% - 20% - 30% - 40% and so on.

Thank you for your help.

Regards,
R Kumar