Understanding HRA in Payroll: How Is It Calculated and What Does It Mean for You?

Is there any actual HR word in HR payroll? I got this doubt when I was searching for a rent receipt for an HRA claim. If actual HRA is there, what is the percentage of that, and will it be based on gross or basic salary? Looking forward to a reply. Thank you.

There is nothing called Actual HRA. HRA is calculated at 40% of the basic salary, and there are no strict rules about it. Its purpose is simply to reduce the income tax burden on employees.

Dear Padma,

I think you are referring to the tax benefit paragraph of HRA. HRA is usually given by employers as 40% of basic + DA (50% for metro cities). However, there are many employers who would give you more than the statutory requirement. Actual rent is the rent that you pay to the landlord. So the tax benefit is on the minimum of the following three:

1. Actual HRA given (the amount that is paid to you and is reflected in your salary)
2. 40% (or 50%) of Basic + DA
3. Rent paid - 10% of (Basic + DA)

Regards,

Dear Jeevarathnam ji and Dear Ankita ji,
Please note that HRA is not compulsory to pay except in some states where there is a law that obligates the employer to pay HRA under certain conditions. There is no law that compels the employer to pay HRA at 40% or 50%. Payment of HRA to employees and taking exemption by employees of this payment under Income Tax are two separate issues.