house rent allowance

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janak (Querist)
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09 September 2009 while calculating hra , we require salary , hra , rent paid . if basic salary 5000 P.M., D.A. Rs.2000(10% is for provident fund contribution). whether we will take 10% of d.a. As a retirement benefits or not to find salary?

Aditya Maheshwari

Aditya Maheshwari (Expert)
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09 September 2009 (i) â€œsalaryâ€ for the purpose of HRA shall have the meaning assigned to it in clause (h) of rule 2 of Part A of the Fourth Schedule;
which is
(h) â€œsalaryâ€ includes dearness allowance, if the terms of employment so provide, but excludes all other allowances and perquisites.
So we will take DA of retirement benefits for HRA calculation.

janak

janak (Querist)
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09 September 2009 i have to ask that "'provident fund contribution is RETIREMENT BENEBITS or not"?

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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28 July 2024 Yes, provident fund (PF) contributions are considered retirement benefits. Let’s break down why this is the case and how it affects the calculation of HRA (House Rent Allowance) exemption.

### Provident Fund Contribution as Retirement Benefit

**Provident Fund Contribution**: This is a part of the employee’s retirement benefits. Under the Employees' Provident Funds and Miscellaneous Provisions Act, 1952, employees contribute a percentage of their salary to the provident fund, which is a retirement savings scheme.

- **Contribution to PF**: Generally, 12% of the basic salary and dearness allowance (D.A.) is contributed towards the PF (or 10% in some cases, as in your example). This contribution is part of the employee’s savings for retirement and is not used in the calculation of HRA for exemption purposes.

### Impact on HRA Calculation

When calculating HRA exemption, you need to consider the following components:

1. **Basic Salary**: The base amount paid to the employee before any allowances or deductions.
2. **Dearness Allowance (D.A.)**: This is an allowance intended to offset the cost of living. For HRA calculation, the entire D.A. is included.
3. **Provident Fund Contribution**: This is not deducted from the salary while calculating HRA exemption. It is a separate retirement benefit and does not impact the HRA calculation directly.

### Calculation for HRA

To calculate HRA exemption, you use the total salary (Basic Salary + D.A.) without adjusting for PF contributions. Here’s how you should handle the calculation:

1. **Calculate Salary for HRA**:
- **Basic Salary**: ₹5k
- **Dearness Allowance (D.A.)**: ₹2k
- **Total Salary**: ₹5k + ₹2k = ₹7k

2. **Calculate the Exemption**:
- **Actual HRA Received**: For example, ₹3k
- **Rent Paid**: For example, ₹6k
- **10% of Total Salary**: 10% × ₹7k = ₹700
- **HRA Exemption**: The minimum of the following:
- Actual HRA received
- Rent Paid minus 10% of Salary
- 50% of Salary (if in a metro city) or 40% (if in a non-metro city)

Let’s do the calculation:
- **Rent Paid - 10% of Salary**: ₹6k - ₹700 = ₹5.3k
- **50% of Salary (in a metro city)**: 50% × ₹7k = ₹3.5k
- **Minimum Value**:
- Actual HRA = ₹3k
- Rent Paid - 10% of Salary = ₹5.3k
- 50% of Salary = ₹3.5k
- **HRA Exemption** = Minimum of ₹3k, ₹5.3k, ₹3.5k = ₹3k

### Conclusion

Provident Fund contributions are considered retirement benefits and should not be deducted from the salary for calculating HRA exemption. When determining the salary for HRA exemption, use the full Basic Salary and D.A., and exclude PF contributions.

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