Confused About HRA Calculation: Is It Based on Basic or Gross Salary?

Richa87
Hello Seniors, I have a small doubt. What is the calculation of HRA? Is it calculated on Basic or Gross salary? As per my knowledge, it is calculated as 40% of Basic for non-Metro Cities and 50% of Basic for Metro Cities. I had a discussion with my Senior Manager yesterday where she told me that a few manufacturing companies calculate HRA based on Gross Salary.
vmlakshminarayanan
Hi, The exemption on HRA is calculated as per Rule 2A of the Income Tax Rules. As per Rule 2A, the least of the following is exempted from salary under Section 10(13A) and does not form part of the taxable income.

- Actual HRA received from the employer

- For those living in metro cities: 50% of (Basic salary + Dearness allowance)

- For those living in non-metro cities: 40% of (Basic salary + Dearness allowance)

- Actual rent paid minus 10% of (Basic salary + Dearness allowance)
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