Is Reducing HRA Percentage Legal Under Tamil Nadu Shops and Establishment Act? Seeking Clarity

Our company pays HRA to staff. Now, they want to reduce the percentage of HRA. Is it legal under the Tamil Nadu Shops and Establishment Act?

State Act for HRA

There are states where a State Act for HRA is in the system. Please check the status in your state and the minimum percentage required to pay. It is usually 5% of Basic + DA.

If there is no State Act, then you can reduce the HRA.

Regards, S K Bandyopadhyay

Technically, nothing stops you from changing the composition of salary, especially if the gross salary stays the same. However, it may have an impact on PF and some other components. A change in salary resulting in an impact on take-home pay needs the consent of the employees. This also impacts the income tax of the employees.

Is there a specific reason why this is planned to be changed?

You can't reduce the rate of HRA being paid to employees. The HRA you are paying is a part and parcel of the conditions of service for employees. You cannot change the conditions of service on a whim.

Hi, Please go through the contents of the above link: https://www.keka.com/library/minimum-wages/tamilnadu.

HRA and the Tamil Nadu Shops & Establishments Act

As far as I know, there is no strict rule prescribing any percentage of HRA as part of the salary under the TN Shops & Establishments Act. Even under the Minimum Wages notified by the TN Government, there is no such stipulation for HRA. However, there is the Basic and DA part of the minimum wages, with no HRA stipulated.

Impact of Reducing HRA

However, any attempt affecting the present emoluments will be a contentious issue, and HRA is one such matter. An attempt to reduce the percentage thereof will not be acceptable to the employees. Perhaps there should be an agreement or Letter of Appointment where these rates could have been mentioned. If so, it's not possible to effect a unilateral action by the employer without the formal approval of all employees concerned.