Which Cities are Included in the HRA Computation as Metro Areas?
HRA Computation : For most people, house rent allowance (HRA) is a significant portion of their pay. Because salaried individuals are entitled to the lowest of the following tax deduction levels under Rule 2 of the Income Tax Rules 1962, the salary component is not fully taxable.
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- The real HRA
- If they reside in a metro area, 50% of your base pay plus dearness allowance (DA); 40% for non-metros
- Ten percent of your base pay less the actual rent you paid, plus DA
Accordingly, the amount of tax-exempt HRA that residents in non-metropolitan areas can claim is limited to 40% of their base pay. On the other hand, residents of major cities are eligible to deduct 50% of their base pay as tax-free human resources.
Which cities are considered metro areas while calculating HRA?
For the purposes of calculating HRA taxes, four cities are regarded as metro areas. Among them are:
- Delhi
- Mumbai
- Chennai
- Kolkata
Keep in mind that for the purposes of calculating HRA taxes, cities that are a part of the Mumbai Metropolitan Region (MMR) or the National Capital Region (NCR) are not regarded as metro cities. This implies that even while rents in certain areas may be considerably higher than others, residents of places like Noida, Gurgaon, Faridabad, Navi Mumbai, Thane, etc. are not eligible for a 50% tax exemption on HRA.
Similarly, cities like Bangalore, Hyderabad, Pune, and Ahmadabad are only regarded as non-metropolitan areas even though they are among the biggest in the nation in terms of population, size, and rental value.
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Sample HRA calculation for metro areas
Based in Delhi Rajat Makhija gets an HRA of Rs 18,000 in addition to his basic salary of Rs 50,000 every month. He pays a monthly fee of Rs 15,000 for his rented house. The deduction in his instance will be the lowest of the three amounts:
*Thirty percent of her base pay: Rs 25,000
*True HRA: INR 18,000
*Actual rent less 10% of base pay equals Rs 10,000 (minimum of three).
His yearly deduction now stands at Rs 1.20 lakh.
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Example of HRA computation for non-metros
Avani Pathak’s base pay is Rs 20,000. Her monthly rent in Lucknow is Rs 6,000, while her HRA is Rs 7,000. The deduction in her instance will be the lowest of the three amounts:
*Amount of 40% of her base pay: Rs 8,000
*HRA in effect: Rs 7,000
*Actual rent less 10% of base pay equals Rs 4,000 (minimum of three).
As a result, the yearly deduction is Rs 48,000.
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