What is the Maximum Limit for HRA?

Hey Buddy. For most employees, the House Rent Allowance (HRA) is a standard component of their pay package. It is a sum that your employer gives you as part of your pay. You are eligible to receive tax benefits on the annual amount of rent you pay for housing as a taxpayer. But do you know what is the maximum HRA exemption limit? Usually, it is 50% of your salary if you stay in metro cities. Let me share more details below.

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What is Maximum HRA Allowed?

It depends on specific criteria set under the Income Tax Act, 1961. The minimum of the following three amounts is considered for HRA exemption:

1. Actual HRA received from the employer.

2. 50% of salary (basic salary + dearness allowance) if the employee lives in a metro city (Delhi, Mumbai, Kolkata, Chennai); otherwise, 40% of salary for non-metro cities.

3. Rent paid minus 10% of salary (basic salary + dearness allowance).

The least of these three amounts are exempted from tax, and the remaining (if any) is taxable.

Employees living in metro cities are eligible for a higher exemption (50% of salary) compared to non-metro residents (40%). If the rent exceeds Rs.1,00,000 annually, the tenant must provide the landlord’s PAN.

This is all about what is the maximum limit for HRA.

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How Much HRA Can be Claimed Without Proof

The HRA

maximum limit

is determined based on certain factors including salary, HRA received, and rent paid. 

What is the Maximum HRA Exemption Limit?

The least of the following amounts is eligible for exemption:

• Actual HRA Received: 

The amount of HRA received from your employer.

50% of Salary (for employees residing in metro cities) or 40% of Salary (for employees residing in non-metro cities): Salary for this purpose includes basic salary, dearness allowance (if it forms part of retirement benefits), and any commission received on the basis of sales turnover.

The term 'salary' here excludes any other allowances or perquisites.

• Rent Paid minus 10% of Salary: 

Rent paid for the accommodation, minus 10% of salary.

The HRA exemption cannot exceed the actual HRA received from the employer.

So, If you want to know, what is the max HRA limit, I’d like to say that this varies depending on these factors. It's important to note that taxpayers need to maintain proper documentation such as rent receipts and rent agreement to claim HRA exemption.

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Hi Sneha,

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Being an employee living in a rented house in a different city, I understand the importance of House Rent Allowance. HRA or House Rent Allowance can be assessed by an agreement between the employer and the employee. Before I begin to tell you the HRA Exemption limit for AY 2021-22, I would first like to brief you on the meaning of House Rent Allowance.

HRA, as can be understood by its name, is a house rent allowance given to the employees living in a rented property. It is not given when the employee resides on a property he/she owns. HRA is a part of the salary and is offered to an employee by adding it to the salary in order to help the employee save some taxes. As per the Rule 2A of the Income Tax Rules of Section 10 (13A) of the Income Tax Act, HRA deduction is offered to the employees of an organization.

The HRA exemption limit for the assessment year 2021-22 is Rs. 250000. The landlord must show the earnings from house rent as income in the ITR filed by him in order to avoid any kind of litigation against him.

Following are the HRA exemptions of tax provided by the Income Tax Act:

• The HRA deduction is said to be the lowest for the HRA given by the employer

• If the employee lives in the metro cities like Delhi, Mumbai. Kolkata, and Chennai, are eligible for 50% of their salary as tax exemption.

• If the employees live in other cities, they are eligible for 40% of their salary as an HRA tax exemption.

The maximum limit for HRA is 50% of the basic salary of the employee. It should not exceed more than that. You can also avail Home Loan benefits of HRA along with tax benefits.

This was my take on the HRA exemption limit for AY 2021-22. I hope it helps you.