Understanding HRA: How Does It Impact Employers and Employees Across Locations?

Dear All,

Kindly give me some insight into HRA:

1. What actually is it?
2. Does the percentage vary from company to company, or is it fixed?
3. Does it vary from location to location (metro, non-metro, etc.)?
4. What is the percentage decided by the Factories Act?
5. How does a low HRA affect the benefit or loss to employers?
6. How does a low HRA affect the benefit or loss to employees?

Regards, Shweta Swarnkar

Dear Shweta,

Answers are as follows:

1. What actually is it?

Ans) HRA is House Rent Allowance, which is paid by the company to its employee in the event where the company is unable to provide accommodation. This is given so that an employee won't have to shell out money from his pocket in order to provide himself accommodation.

2. Does the percentage vary from company to company or does it have to be fixed?

Ans) It depends upon the company. Normally, it is fixed based on grade, but it can also be determined as a fixed percentage of Basic Salary.

3. Does it vary from location to location (metro, non-metro, etc.)?

Ans) Normally, it does not vary from place to place, but a few companies can have such a policy. It cannot be definitively commented upon.

4. What percentage is decided by the Factories Act?

Ans) The Factories Act does not specify anything on this.

5. How can low HRA be a benefit or loss to employers?

6. How can low HRA be a benefit or loss to employees?

Ans (for 5 & 6): Whether HRA is considered low or high depends upon the location. For instance, in a metro area, an HRA of 10000 may not be high if one is seeking a decent house in a good location, whereas in a non-metro area, it could be considered high. Therefore, whether HRA is low or high really depends on the location as well as individual preferences for the choice of house/location.

Regards,

Nilendra

Dear Nilendra,

Regarding the 50% tax exemption, you can receive a tax deduction of up to 50% of your basic and DA in metro areas. As for the 18%, I am unsure about that.

Regards, Nilendra

HRA - House Rent Allowance

It differs according to grade (salary). It also varies from metro to non-metro cities.

Thank you!

Hi Shweta,

HRA stands for Home Rent Allowance, which is a component of the salary structure used to save taxes. The percentage varies from company to company and also from place to place. Generally, it ranges from 40 to 60% of the basic salary. HRA can be a benefit for employees at the time of tax payment.

Regards,

Amit Seth

1. What actually is it?
2. Does the percentage vary from company to company or is it fixed?
3. Does it vary from location to location (metro, non-metro, etc.)?
4. What percentage is decided by the Factories Act?
5. How does a low HRA benefit or affect employers?
6. How does a low HRA benefit or affect employees?

Hi,

Please see the HRA calculation for HRA tax exemption.

The exemption from IT will be given based on the least of the following 3 conditions:
1. Actual HRA received
2. 40% of Basic and 50% for Metropolitan city
3. Rent paid - 10% of basic salary

Regards,
Hemachandra
Email: 26.hema@gmail.com

Hi, I agree with Hemchandra regarding HRA. HRA depends on the company's HR policy, but normally it's 40% in non-metro cities, i.e., other than Delhi, Mumbai, Kolkata, Chennai, etc. In metro cities, it's 50% of the basic salary. In my organization, we get HRA as 60% of the basic salary. However, the HRA IT exemption calculation will be based on the least of the conditions below:

1) Actual HRA received
2) 40% of basic salary (non-metro cities) or 50% of basic for metro cities
3) Actual rent paid - 10% of basic

The minimum of the above will be considered for exemption.

Hi to those who have confusion in HRA. For example, your basic salary is 5600 (in Delhi). Calculation of IT Exemption:

1) Suppose the actual HRA you receive is 2500.
2) 50% of 5600 (since in a Metro City) is 2800.
3) Actual rent paid - 10% of BS, i.e., 2300 - 10% of 5600 is 2300 - 560 = 1740.

So, from the above 3 steps, your Rs. 1740 will be exempted for tax purposes as it is the least.

Well, I hope I'm right. If there are any mistakes, please do correct me.

Akshita 😂

Dear Shweta,

By itself, House Rent Allowance can be given as a percentage of basic salary or as a fixed sum. It can be the same percentage for all grades or, in the case of fixed sums, it can differ from grade to grade. However, if you want to take as much advantage of tax exemption as possible, then the formula provided by earlier posts has to be considered while fixing HRA.

Jeroo

Dear all,

Thank you for the information I received here about HRA; it helped me a lot. However, in my company, my director wants to create different salary structures for various employees, and for some, he wants the HRA amount to be nil. Is this permissible? If yes, is it advisable to do so? Please help me with these queries.

With regards,
Jasmine