Salary · HRA and Allowances
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HRA exemption is the largest salary deduction for most salaried employees, but the most commonly computed wrong. The 4-city metro rule (Delhi, Mumbai, Chennai, Kolkata only) is where most people err. Bengaluru, Hyderabad, Pune, Ahmedabad are NOT metro. Using 50% instead of 40% for non-metro cities = excess exemption claim = tax demand. The correct formula is always the MINIMUM of three amounts.
Sec 11 (old 10(13A)); Rule 279 (old Rule 2A); CBDT Circular; Sec 393 (old 194-IB) link
The three-number formula, always the LOWEST: Basic ₹40,000/month. HRA received ₹18,000/month. Rent paid ₹20,000/month. City: Bengaluru (NON-METRO = 40%). (a) Actual HRA = ₹18,000. (b) Rent − 10% basic = ₹20,000 − ₹4,000 = ₹16,000. (c) 40% of basic = ₹16,000. Minimum = ₹16,000/month × 12 = ₹1,92,000/year exempt. Balance HRA (₹18K − ₹16K = ₹2K/month = ₹24K/year) is taxable. Metro cities, ONLY FOUR: Delhi (includes NCR, Gurgaon, Noida? ONLY Delhi proper = metro). Mumbai. Chennai. Kolkata. That is ALL. Bengaluru: NON-METRO (40%). Hyderabad: NON-METRO (40%). Pune: NON-METRO (40%). Ahmedabad: NON-METRO (40%). Jaipur: NON-METRO. Lucknow: NON-METRO. This is a very common error, tech employees in Bengaluru routinely claim 50% thinking Bengaluru is metro. Wrong. HRA when renting from parents: CBDT has allowed HRA exemption when rent is paid to parents who own the property.
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