SALARY & HRA (Income Tax)

This query is : Resolved

Vishal Saxena

( Author )
28 January 2011

Is Dearness Allowance included in Salary for the purpose of HRA??

please explain with an example!

VISHAL SAXENA

CA. SANAT PYNE

( Expert )
29 January 2011

The minimum of the following three is available as exemption from your income:

1. The actual HRA received from your employer

2. The actual rent paid by you for the house, minus 10% of your salary (this includes basic + dearness allowance, if any)

3. 50% of your basic salary (if you live in a metro) or 40% of your basic salary (if you live in a non-metro)

Let’s take the following example:

Basic:15,000

DA:5,000

HRA:9,000

Rent paid:10,000

You live in Mumbai.

Now let’s evaluate the above rules:

1. The actual HRA received from employer

This is9,000

2. The actual rent paid for the house, minus 10% of salary

This would be10,000 – 10% of (Rs. 15,000 +5,000) =10,000 –2,000 =8,000

3. 50% / 40% of your basic salary

Since you live in a metro, this would be 50% of15,000 =7,500.

The minimum of 1, 2 and 3 is7,500. Therefore, the amount of HRA exempt from tax is7,500 per month.

The remaining HRA amount of1,500 (Actual HRA received9,000 – exempt HRA7,500 =1,500) would be added to your income, and would be subject to income tax.

CA. SANAT PYNE

( Expert )
29 January 2011

for details you can visit

http://caclubindia.com/forum/hra--an-overview-122733.asp

CA PARAS BAFNA

( Expert )
30 January 2011

If it is considered for calculating the retirement benefits, or say it is in the terms of employment, then only DA will be added in salary for the purpose of HRA.

If 60% of D A is considered for retirement benefits out of DA Rs. 10000/-, For HRA
purpose only 6000/ will be added.

Vishal Saxena

( Author )
31 January 2011

Thanks Sir for your valuable explanation,

but if in case there is no information given about terms of employment, then shall we include DA with Salary or not.??

CA PARAS BAFNA

( Expert )
31 January 2011

In the Real life Case :
-----------------------
Inquire with the company.

In the Examination :
---------------------
Disclose your assumption by putting a note
in the bracket or at the end of the Answer.

In Caclub life
---------------
Analyse the opinions given by the experts.