HRA – House Rent Allowance – Exemption Rules & Tax Deductions 

Dear Colleagues,

House Rent Allowance, or commonly known as HRA, is an amount which is paid by employers to employees
as a part of their salaries. This is basically done as it helps provide employees with tax benefits towards the
payment for accommodations every year. The decision of how much HRA needs to be paid to the employee
is made by the employer on the basis of a number of different criteria such as the salary and the city of
residence.

Regulated by the provisions of Section 10(13A) of the IT Act, the house rent allowance serves to be quite
beneficial to salaried employees in India.

As per law, only salaried employees can claim HRA and self‐employed individuals are exempt from doing
the same. HRA, as an exemption is provided, only if the employee is living in rented accommodations.
However, also in case the employee lives in his or her own house and does not pay any rent, he or she
cannot claim HRA to save on taxes.
Jagdish Pathak +91 9811488664
pathakj2001@gmail.com
 RULES – HOW TO CALCULATE

The deduction available is the least of the following amounts:‐

( A). Actual HRA received from the company.

( B). 50% of [basic salary + DA] for those living in metro cities (40% for non‐metros).

( C). Actual rent paid by the employee, less 10% of basic salary + DA

Jagdish Pathak +91 9811488664

pathakj2001@gmail.com
 ILLUSTRATION:‐

Mr. Kumar, employed in Gurgaon, has taken up an accommodation on rent at Delhi for which he pays a 
rent of Rs 15,000 per month ( Rs. 1,80,000/= per annum) during the Financial Year (FY) 2019‐20. 
He receives a Basic Salary of Rs 25,000 per month (Rs. 3,00,000/= per annum) along with DA of Rs 2,000 
per month (Rs. 24,000/= per annum), which forms a part of the salary. 
He also receives a HRA of Rs 9,000 per month (Rs. 1,08,000/= per annum) from his employer during the 
year. 

Let us understand the HRA component that would be exempt from income tax during the FY 2019‐20.

Jagdish Pathak +91 9811488664

pathakj2001@gmail.com
S.NO PARTICULARS AMOUNT (IN RS)  AMOUNT (IN RS)

1 ACTUAL HRA RECEIVED FROM THE COMPANY      1,08,000/= p.a.
( Rs. 9,000/= per month)

2 50%  OF BASIC + DA
{(25,000 p.m.*12) + (2,000 p.m.*12)} *50%

*** 1,62,000/= p.a.
(50% is considered as the accommodation is in 
Delhi)
3 RENT PAID RS. 15,000 P.M. * 12 MONTHS

MINUS (‐) 1,80,000/=p.a.
1,47,600/= p.a.
10% OF BASIC + DA   i.e.….
{(25,000 p.m.*12) + (2,000 p.m.*12)} *10%  32,400/= p.a.

Amount of Exempted HRA  ( least of Above )  1,08,000/= p.a.

Jagdish Pathak +91 9811488664

pathakj2001@gmail.com