Taxability of HRA depends on following two of factors : – Â Â Â Â Â
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- Rented house i.e. the assessee MUST be living in a rented house. Deduction of HRA cannot be claimed when one is residing in his own house or is not paying rent at all.
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- Place of residence i.e. in metro cities (Delhi, Bombay, Calcutta & Madras) or other cities.
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  CALCULATE THE FOLLOWING     Â
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- 50% of Salary* (if assessee is living in metro cities) OR 40% of Salary (if assessee is living in other cities)
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- Deduct 10% of salary* from rent paid by the assessee.
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  Now take the least of the above calculated amounts & compare it with the amount of HRA received by the assessee.   CASE 1   if calculated amount > HRA received then whole of HRA is exempt from tax   CASE 2   if calculated amount < HRA received then the amount chargeable to tax is (HRA   Calculated Amount).      Note - * means that salary includes the following  1.       Basic Salary  2.       Dearness Allowance 3.       Commission based on a fixed percentage of turnover (Sales) achieved by the employee as per terms of contract of employment. Gurpreet Singh, CA    Â
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