House Rent Allowance (HRA) is best tax saving tools available to employees. With these you can save upto 50% of your salary if you reside in Metro (40% of your salary if you reside in non-metro).
As per income Tax act, for calculation House rent allowance least of the following is available as deduction:
- Actual HRA received.
- 50% / 40% (metro / non-metro) of basic ‘salary’.
- Rent paid minus 10% of ‘salary’. Basic Salary for this purpose is basic+ DA forming part+ commission on sale on fixed rate.
Cities Like, Delhi, Mumbai, Chennai and Kolkata constitutes Metro. All cities other than these are non-Metro. So if you resides in cities like Gurgaon, Faridabad, Bangalore, Hyderabad, etc it would constitutes as Non metro and only 40% deduction will be allowed.
CONDITIONS YOU NEED TO SATISFY FOR HRA EXEMPTION
Under Section 10 of the Income Tax Act, certain exemptions are permissible on the HRA. To claim such exemptions one must satisfy the below conditions.
- The employee must not own the property in which he is residing.
- Employees must be paying rent for the accommodation in which residing.
- Such rent must be more than 10 per cent of his/her salary.