How to calculate house rent allowance while computing income tax

January is usually the time when salaried employees have a deadline to submit the details of the exemptions they would seek while paying the income tax for the full year. This would include the calculation for house rent allowance, which many find to be complicated.

Here is a simple explainer on how to calculate the exemption available on house rent allowance for the purpose of income tax.

House Rent Allowance (HRA) is provided to an employee to cut down the income tax liability. The entire HRA cannot be deducted from the taxable income as the rules clearly lay out the parameters to be considered.

Depending on what the HRA component of your salary is, the deduction from taxable income will be the lowest of the following:

1. Actual HRA component of salary
2. 50% of basic salary if he resides in metro cities (Delhi, Chennai, Kolkata, or Mumbai) or 40% of basic salary if his residence is in any other city
3. Actual rent paid less 10% of basic salary

Here is an example to understand the process.


Assuming the person lives in one of the 4 metro cities, and pays a rent of ₹20,000 a month, the deduction from taxable income will be the lowest of the following figures:

You can calculate the exact amount applicable to you by replacing the figures with the ones mentioned in your salary statement.

If you live in a non-metro, then the deduction available will be 40% * ₹21600 * 12 = ₹103,680.

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