House Rent Allowance - How to calculate

Many of us still do not know how to calculate House Rent Allowance though this is one of the major components of Salary in India. 

The calculation of exemption that you can get under section 10(13A) of the Income Tax Act, 1961 for House Rent Allowance is very simple. Calculate the following three things, all of this information should be available on your payslip or the Cost to Company break up:

(Please note to gross it up to an annual figure starting April to March of next year - 12 months period)

(1) Actual HRA Received - the amount that you receive as HRA from your employer
(2) Rent paid in excess of 10% of Salary ie. Actual Rent you pay minus 10% of your Basic Pay
(3) 40% of Salary (50% in case you live in Delhi/Kolkata/Mumbai/Chennai)

Salary in the above context refers to Basis Salary, also called Basic Pay by some employers. 

Some of the employees in the public sector or in Government employment will have Dearness Allowance (DA) also included in their payslip. In the case of such employees Salary shall mean Basic Pay plus Dearness Allowance, if the terms of employment so provide.

When I say terms of employment so provide, you will need to check with your employer if DA is considered part of your salary for the purpose of calculation of other benefits. If not, this cannot be included in the computation of salary.

Once you have figured out the numbers in (1), (2) and (3) above, the least of amounts so calculated will be your exemption for that particular year.

Simple example:

We have the following data:

Basic Salary or Basic Pay - Rs. 20,000 per month
HRA Received - Rs.15,000 per month

(Case 1) House Rent Paid - Rs. 3,000 per month, living in Mysore
(Case 2) House Rent Paid - Rs. 3,500 per month, living in Delhi

How to calculate:

(1) Actual HRA received - Rs. 15,000 x 12 months = Rs. 1,80,000

(2) Rent paid in excess of 10% of Salary: 
10% of salary will be Rs. 20,000 x 10% x 12 months = Rs. 24,000
Rent paid in Case 1 - Rs. 3,000 x 12 months = Rs. 36,000. Excess rent paid is Rs. 12,000
Rent paid in Case 2 - Rs. 3,500 x 12 months = Rs. 42,000. Excess rent paid is Rs. 18,000

(3) Case 1 - 40% of Salary ie. Rs.1,80,000 x 40% (living in Mysore) = Rs.72,000
Case 2 - 50% of Salary ie. Rs.1,80,000 x 50% (living in Delhi) = Rs. 90,000

Least of the above for Case 1 - Rs.12,000 and for Case 2 - Rs. 18,000. Only this much will be exempt and the same shall be deducted from your Gross Salary for arriving at your Gross Total Income.

Note: Suppose 10% of your Basic pay is more than your monthly rent, the exemption will be zero.

Wasn't that simple.