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How to Calculate HRA from Basic - HRA Calculation with Example

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This article is published in collaboration with Scutify, where you can find real-time markets and stock commentary from Robert Marcin, Cody Willard and others. Download the Scutify iOS App, the Scutify Android App or visit Scutify.com.

The ever-rising inflation clearly impacts the lifestyle of a common man. However, a salary increment often brings smiles on the faces of both government and private employees. The gross salary is composed of several components like Basic Salary, Dearness Allowance, Travel Allowance, Medical Allowance, HRA etc.

Among several allowances provided by organizations, the HRA forms a major part of your gross salary. Thus, during an increment, the HRA calculation plays a key role in determining the growth in your gross salary.

The calculation of HRA also helps in reducing the taxable income and facilitates tax saving.

What Is HRA?

HRA or House Rent Allowance is the additional benefit offered to the employees in the form of money, and the amount forms a major part of their salaries. In case, an employee lives in a rented house; the HRA helps him/her pay off the house rent.

Factors Influencing HRA Calculation

Before you open your laptops and move forward with the HRA calculation in excel. You need to be aware of the factors that lead to variation in the HRA. The amount of HRA you receive is influenced by the following factors-

  • The amount of HRA agreed between you and your employer.
  • The city or place you reside. An employee residing in a metro, or a thickly populated area is likely to receive a higher HRA, as opposed to an employee with a similar profession living in a small town.
  • Your Basic Pay - The HRA calculation is directly dependant on your basic pay. The higher is the basic pay; the bigger is the HRA.

Note - HRA can be partially or fully exempted from taxes. Refer to the HRA exemption section to learn more.

What is Basic Pay?

The amount given to an employee because of the work done by him/her is called basic pay. It doesn't include allowances, benefits, bonus, and compensation offered by an organization.

Calculation of HRA from the Basic Pay

The amount of HRA you receive is dependent on your basic pay.

Suppose, you reside in a metro then the amount of HRA you are entitled to get is 50 percent of your basic salary. Similarly, an individual residing in a place other than the metro is entitled to get 40 percent of his/her basic salary as HRA.

Note - To accurately understand the role of basic pay in HRA calculation. You need to consider the following scenarios.

The Key Scenarios Concerning the HRA

HRA calculation can be tricky. The basic pay can be used to calculate the HRA exemption.

The least amount will be considered for HRA exemption after examining the following scenarios-

  • The amount of HRA provided by the employer to the employee.
  • Actual annual rent paid subtracted from 10 percent of the basic salary.
  • 50 percent of basic salary for individuals residing in the metro city, and 40 percent of the basic salary for individuals residing in places other than the metro cities.

Explaining the Scenarios with An Example

You won't need the HRA exemption calculator, consider the following example-

Salary Slip of Amit Rao Location - Mumbai

Employee ID

719731

Name- Amit Rao

DOJ- 25 January 2015

PF Number- *******

Basic Salary

25,000

HRA

12,000

PF- 1,800

Conveyance

2,000

Professional Tax-200

Special Allowance

2,500

Medical Allowance

1,000

Travel Allowance

4,000

Total Earnings

46,500

Here, Amit Rao doesn't receive deadness allowance or bonus - Hence the HRA calculation will be based on his basic pay.

Actual Rent Paid by Amit Rao = 10,000

10 percent of the annual basic pay of Amit Rao will be - 10 % of (25,000 multiplied by 12) = 30,000.

Now, we will consider the above three scenarios and calculate the HRA exemption-

First Scenario - The amount of HRA received by the employee from employer (annually) = 25,000 multiplied by 12 = 3,00,000.

Second Scenario - Actual Annual Rent Paid - (10% of annual basic pay) = (10, 000 × 12) - 30,000 = 1,20,000 - 30,000 = 90,000.

Third Scenario - Since Amit resides in a metro the total amount would equal to 50 % of annual basic pay = 1,50,000.

By considering the three scenarios the amount of HRA exemption applicable for Amit will be the minimum amount calculated from the above three scenarios. So, he will be entitled to a tax exemption of 90,000.

House Rent Allowance - Key Points to Note

  • Your HRA cannot be more than 50 percent of your basic salary.

  • Only the employees who stay in a rented house are eligible for the HRA
  • If an employee stays with his/her parents, he can claim the HRA by paying rent to his/her parents. However, the same is not applicable in the case of his/her spouse.


This article was written by Archana Singh for on .

This article published in collaboration with Scutify, the best app for traders and investors. Download the Scutify iOS App, the Scutify Android App or visit Scutify.com.

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