What guidelines apply to the computation of the house rent allowance?
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Calculation of House Rent Allowance (HRA):
House Rent Allowance (HRA) is a component of salary provided by employers to employees to meet their rental expenses for accommodation. The provisions for calculating HRA are governed by the Income Tax Act, and certain conditions must be met for employees to claim HRA exemption.
1. Actual HRA Received: The actual amount of HRA received by the employee from the employer is considered for calculation.
2. Salary: For the purpose of calculating HRA, salary includes basic salary, dearness allowance (if it forms part of retirement benefits), and commission based on a fixed percentage of turnover achieved by the employee.
3. Rent Paid: The actual rent paid by the employee for the accommodation in which they reside is considered for calculation. It is important to note that the rent paid must exceed 10% of the salary to be eligible for HRA exemption.
4. Location of Residence: The HRA exemption is based on the location of the rented accommodation. It is categorized into three categories – metro cities, non-metro cities with a population exceeding 10 lakhs, and other areas.
5. HRA Exemption Calculation: The least of the following amounts is exempt from tax:
6. Example:
Conclusion:
HRA is an important component of salary that helps employees meet their rental expenses. Understanding the provisions for calculating HRA and the conditions for exemption can help employees optimize their tax liabilities.