How to Calculate HRA i.e. House Rent Allowance

Step 1: Understand the three conditions

HRA is typically calculated using the least of the following three amounts:

1. Actual HRA Received: The amount your employer provides you as HRA.
2. Actual Rent Paid Minus 10% of Salary: Your total salary minus 10% of your basic salary.
3. 50% of Basic Salary (for metro cities) or 40% of Basic Salary (for non-metro cities)

The minimum HRA that can be claimed.

Step 2: Gather Information

1. Basic Salary: This is the fixed part of your salary, excluding any bonuses or overtime pay = Rs 1250000
2. Actual Rent Paid: The total amount you pay as rent for your accommodation = Rs 660000
3. HRA Received: The actual HRA provided by your employer = Rs 500000
4. Calculate: 10% of Basic Salary = 10% of Rs 1250000 = Rs 125000

Step 3: Calculate HRA as per the three conditions

1. Actual HRA Received: Rs 515000
2. Actual Rent Paid Minus 10% of Salary: Rs660000-125000= Rs535000
3. 50% of Basic Salary (for metro cities) or 40% of Basic Salary (for non-metro cities) : Suppose individual lives in a non-metro city = 40% of Rs 1250000 = Rs 500000

Step 4: Consider Least amount from the above calculated amount

Rs 500000 is least amount and this amount will be considered as exempted HRA