HRA Calculation Income Tax Act 2025
The complete rules for calculating the House Rent Allowance (HRA) exemption are as follows. The exempted amount not included in the total income will be the minimum of the following three calculations:
- The actual HRA amount received by the assessee for the relevant period.
- The actual rent paid for the residential accommodation occupied by the assessee, minus 10% of the salary due to them for the relevant period.
- A specific percentage of the salary depending on the location of the residential accommodation:
- 50% of the salary if the accommodation is located in Mumbai, Kolkata, Delhi, Chennai, Hyderabad, Pune, Ahmedabad, or Bengaluru.
- 40% of the salary if the accommodation is located in any other place.
Key Definitions for the Calculation:
- Salary: For the purpose of HRA calculation, “salary” includes the basic salary and Dearness Allowance (only if the terms of employment provide for it), but it strictly excludes all other allowances and perquisites.
- Relevant Period: This refers to the specific period during the tax year when the assessee actually occupied the rented accommodation.
Example Calculation (for illustrative purposes):
Suppose an employee lives in rented accommodation in Delhi and has the following yearly financial details:
- Basic Salary + Dearness Allowance = ₹6,00,000
- HRA Received from Employer = ₹2,40,000
- Actual Rent Paid by Employee = ₹1,80,000
Let’s apply the three rules to find the minimum amount:
- Actual HRA received: ₹2,40,000
- Rent paid minus 10% of salary: ₹1,80,000 – ₹60,000 (which is 10% of 6,00,000) = ₹1,20,000
- 50% of salary (since the city is Delhi): 50% of ₹6,00,000 = ₹3,00,000
Conclusion: Since the exemption is the minimum of these three amounts, the exempted HRA will be ₹1,20,000. The remaining HRA received by the employee (₹2,40,000 – ₹1,20,000 = ₹1,20,000) will be considered part of their taxable salary.