Question

13.
(a)
Mr. Abraham is employed in Chennai. His
pay particulars are as follows:
Basic salary Rs. 12,000 p.m.
D.A. Rs. 3,000 (p.m.) (not forming part of
salary)
HRA Rs. 6,000 (p.m) (actual rent is
7,000 p.m.)
Calculate taxable HRA.​

Answer 1

Answer:

House rent allowance (HRA) is a basic component of your salary. However, most of us are not familiar about the rules that can help us save tax on it. If you are a salaried employee living on rent, then here's how you can use HRA to reduce your tax liability.

Calculation of tax-exempt HRA amount

The amount of HRA received by you from your employer is not fully exempt from tax. The tax-exempt portion of the HRA is actually the minimum of the following:

a) Actual HRA received from employer

b) 50 percent of the 'salary' if the accommodation is in the metro cities (Delhi, Mumbai, Chennai, Kolkata) or else 40 percent for other cities

c) Excess rent paid annually over 10 percent of the annual 'salary'

Here 'salary' means basic salary, dearness allowance (DA) (if it forms part of the retirement benefit) and commission received on the basis of percentage of turnover. No other allowances like special allowance are added into to your salary for computing the tax-exempted HRA amount.

Explanation: