How to calculate the Income Tax exemption on House Rent Allowance...
If an employee is living in a rented house, exemption is allowed to the extent of the least of the following...
Actual House Rent Allowance received from your employer
Actual House Rent paid excess of 10% of salary
50% of basic salary, if residence is in a metro or 40% of salary in non-metros.
For example :
If an employee is getting pay of Rs.15,000 pm, and HRA is 4,500. He is paying rent as Rs.2,500
calculation of amount of House Rent Allowance admissible for imcome tax exemption will be...
1. HRA received (12 x 4,500 = 54,000) : 54,000
2. Rent paid in excess of 10% (30,000 - 18,000) : 12,000
3. 50% of salary : 90,000
Out of the total of House Rent Allowance of Rs.54,000 received, Rs.12,000 which is the lease of the three items is admissible for income tax exemption. So the balance of Rs.42,000 will be include under income.