As an employee, one of the common expenses that you incur is your rent. If you are living in a rented house, your employer may offer you a House Rent Allowance (HRA) as a part of your salary package. This allowance can be claimed as a deduction under the Income Tax Act, 1961, which can help you save on your taxes.
The HRA exemption can be claimed only if the employee is living in a rented accommodation and is receiving HRA from his employer. The amount of exemption is calculated as the minimum of the following three options:
- Actual HRA received from the employer
- Actual rent paid minus 10% of the basic salary
- 50% of the basic salary if the employee is living in a metro city or 40% of the basic salary if living in a non-metro city
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