The amount of tax deduction that can be claimed over HRA is the least of the following:
- Actual rent paid minus 10% of the basic salary, or
- Actual HRA offered by the employer, or
- 50% of salary when residential house is situated in Mumbai, Delhi, Chennai or Kolkata; 40% of salary when residential house is situated elsewhere
NOTE: Salary refers to the sum of basic salary, dearness allowance (DA) and any other commissions, if applicable for the purpose of HRA calculation.
For Example:
Mr. A, who lives in a rented house, works as a salaried employee in Delhi. He pays a monthly rent of Rs. 12,000 and receives a monthly HRA of Rs. 15,000. Now, let us understand how much tax deduction he can claim on the basis of this allowance.
The following table shows the salary structure for Mr. A.
| Salary Component |
Amount (Rs.) |
| Basic |
23,000 |
| HRA |
15,000 |
| Conveyance |
3,000 |
| Medical Allowance |
1,250 |
| Special Allowance |
2,300 |
| Total |
44,550 |
The amount of tax deduction that can be claimed will be the least of the following:
- (Actual rent paid) – (10% of the basic salary) = Rs. 12,000 – (10% of Rs. 23,000) = Rs. 9,700; or
- Actual HRA offered by the employer = Rs. 15,000; or
- 50% of the basic salary = 50% of Rs. 23,000 = Rs. 11,500.
The least of the above three is the actual amount paid as rent minus 10% of the basic salary. Hence, Mr. A will get an HRA exemption of Rs 9,700 on his total taxable income.
NOTE: You can use Income Tax Department’s HRA calculator to know the amount of claimable deduction u/s 10(13A) of the IT Act.
