House Rent Allowance (HRA)
HRA(House Rent Allowance)is tax exempted. But the amount for HRA to get tax exemption is calculated based on your Basic Salary.
How to calculate the amount of HRA you can claim for Tax Exemption?
The first task is to find the least amount among the three clauses listed below:
- Clause 1 : Calculate 50% of your Basic Salary if metro city. (else 40% of Basic Salary).
- Clause 2: Rent Paid – 10% of the Basic Salary(excess rent paid over 10% of basic salary)
- Clause 3: Actual HRA received from the employer.
Whichever amount from the three clauses is the less,that amount will be exempted from tax.
Calculation of HRA – An Example
To explain with an example,
If your basic salary is 12000/- and if you live in a non-metro city and the fixed company HRA is 5000/- and paying rent of 7000/- per month.
- clause 1 amount=40% of 12000=4800
- Clause 2 amount=7000-(10 % of 12000)=7000-1200=5800
- Clause 3 amount=5000
So least among the three is as per clause 1, which is 4800. That will be the amount to be excluded from tax.