The HRA percentage varies from 20% to 40% of the basic depending on the city. In our company, for B & C Grade cities, 20% HRA is paid on Basic+DA. In A Grade cities, such as Ahmedabad, Pune, Hyderabad, etc., 30% HRA on Basic + DA is provided. For Metro/Expensive Cities, 40% HRA on Basic + DA is paid (Bangalore, Mumbai, Delhi, Kolkata, Chennai).
Special HRA allowances are given to employees working in Srinagar and northeastern states.
Please refer to the Income Tax Act (49th edition 2005), on page 1.58 under Rule 2A, which clearly specifies that the HRA for four major cities, namely Mumbai, Calcutta, Delhi, and Madras, is 50% of Basic Salary and DA, and 40% for other cities.
I would attempt to answer this question in the following manner:
* HRA is dealt with under the INCOME TAX Act, and rules provide for specific dispensation based on the cities where the HRA is provided.
* The other way to deal with HRA is the value that the company wants to put on it based on its compensation philosophy and locational specificity. Ideally, HRA should be anything between 12% to 15% of the total employment cost. This treatment points to 40% - 50% of the basic salary (congruent with the IT dispensation) - considering the fact that the basic salary itself is up to 30%-33% of the total employment cost. Further, depending on the percentage of the total employment cost the basic salary is based upon, higher percentages (more than 50% - going up to 100% of basic salary) are also seen in the industry - where the basic salary is lower. Lower percentages (up to 10% - in the case of workmen/PSUs/government - where normally basic salary is a much higher component) are also prevalent.
Regards,
mxsingh
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