HRA is paid only to persons who work for us in the location but having his own house in some other place. Now when you hire a person, there will be an understanding that he has to stay in the location where he has to work and in order to make him available in the location we will offer, IN ADDITION TO SALARY, an amount with which he can take a house on lease. This is called HRA. Depending upon the category of employees, you can have different slabs of HRA. It can be a dormetry kind of arrangement with common bath room etc, the rent of which is paid by the employer himself, in the case of workers; it can be flats in the case of middle level employees or furnished villas for others. The cost of rent can be added to your CTC but not in GROSS SALARY. Obviously, for local employees or people from the same locality, this will not be available. That is not at all an issue also. Why we pay to to some employees? because we need them to be available in the place of operation.
In the above arrangement, if an employee could not come to office for, say, four days, due to some reasons and since he had no leave to his credit the days were marked as Leave without Pay, then he will get the HRA in full but four days salary on the basis of gross salary only be deducted. In the case of HRA as a component of gross salary he will not get it. The first case recognises that he is still in the locality though could not come to office and as such he should pay rent to the landlord in full even though he did not go to office for a few days (for the landlord whether he goes to office or not is not at all an issue). The when it is a part of gross salary he will lose it for four days. If it is lost there should be a reason. The reason is that he didnot attend to his office and as per terms and conditions of employment, HRA is a part of gross wages and that will be proportionally deducted when he is absent.
When HRA is paid over and above salary, that can be exempted from PF. But when it is included in the gross salary, it should be considered as part of PF qualifying salary