HRA Tax Exemption

House Rent Allowance, commonly known as HRA, is a component of an employee's salary that may be fully or partially taxable under Section 10(13A) of the Income Tax Act. Calculating HRA involves considering factors such as:

1. Employee's salary
2. Actual rent paid by the employee
3. HRA receivable by the employee
4. Location of the employee's residence
5. Location of the company or employer

Various sections of the Income Tax Act aim to make rent expenditures more affordable and attractive for salaried individuals, self-employed persons, and professionals. Salaries, whether in the private or public sector, often consist of several minor components, and HRA can be either fixed or determined through a special agreement between the employee and the employer.

HRA for Self-Employed Individuals:

Self-employed individuals can also claim deductions and HRA tax exemptions under Section 80 GG. This section is applicable not only to the self-employed but also to salaried employees who do not receive any HRA.

HRA for Salaried Individuals:

Salaried individuals are eligible for HRA exemptions under Section 10(13A) as per Rule 2A of the Income Tax Act. HRA is a crucial part of an individual's salary, and its benefits should be claimed according to the company's rules.

HRA Tax Exemption for Salaried Individuals:

Income Tax Act Section 10(13A) provides for HRA tax exemption, and the deduction will be the lowest among the following:

1. The HRA provided by the employer.
2. 50% of the employee's salary is eligible for HRA tax exemption if they reside in a metro city such as Delhi, Mumbai, Kolkata, or Chennai.
3. For other cities, 40% of the salary can be HRA exempted.
4. Actual rent paid by the employee for the residence each month minus (-) 10% of their salary, including basic salary, dearness allowance, and commissions.