HRA Calculation for Deductions Under Income Tax Act

HRA is that part of an employee’s salary, paid by the employer, which offers a tax benefit to the employees for the amount paid by them towards the accommodation rent. In simple words, your employer pays a certain section of the salary as an allowance for the rent paid by you for a leased accommodation. This component of the salary can be used to avail tax rebate under the Income Tax Act, 1961.The HRA is regulated under the guidelines provided under Section 10(13A) of the Income Tax Act of 1961 . Salaried employees can claim HRA deduction as part of their Income Tax deductions. It can only be claimed by salaried employees staying in rented accommodation.

In this age of digitization, many calculations vis-à-vis salary, investments, tax, and rebates can be done online through multiple online calculators. HRA calculators online help in determining the HRA deduction in a financial year.

The HRA calculation is based on multiple factors like –

1. If the employee resides in a metro city, then they are entitled to an HRA of 50% of their basic salary.
2. If the employee is residing in a non-metro city, then they are entitled to an HRA of 40% of their basic salary.

1. City –
2. Lowest Among the Following – The minimum value among the following is considered for HRA deduction for Income Tax benefit
   Let us take the example of Ms. Rukmini for calculating the amount of HRA applicable for a Tax deduction. Rukmini stays in a rented accommodation in Pune with a monthly rent of Rs. 15000. Following is the monthly salary of Rukmini –Now to calculate the HRA of Rukmini that is exempt from her Income Tax, we have to consider all the three scenarios discussed above –The lowest value among these is Rs. 1,38,000; this amount will be considered for Rukmini’s HRA deduction calculation for Income Tax benefits.

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The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.