HRA (House Rent Allowance)
HRA is a salary component paid towards rented accommodation, part of which is exempt from income tax under the old regime if the employee actually pays rent.
Also known as: house rent allowance, HRA exemption, HRA meaning
The exemption is the least of three amounts: the HRA actually received, rent paid minus 10% of basic salary, and 50% of basic for metro cities or 40% elsewhere. Because it is the least of three, raising HRA in a salary structure does not raise the exemption beyond what rent and basic allow.
Two conditions catch people out. The exemption requires rent to genuinely be paid — living in your own home or with family without paying rent means no exemption, whatever the payslip says. And it applies under the old tax regime; an employee who has opted for the new regime gets no HRA exemption at all, which makes the structure question moot for them.
For employers the practical burden is proof. Rent receipts, and the landlord's PAN above the annual threshold, have to be collected and retained, because the exemption is claimed through payroll and the employer is the one who allowed it.
Statutory note
HRA exemption sits in Section 10(13A) of the Income Tax Act and applies only under the old regime. Metro classification and thresholds are set by the Act — confirm current values rather than relying on a remembered figure.
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CTC is the total annual cost an employer bears for an employee — salary, allowances, employer contributions and benefits combined — not the amount the employee receives.
Basic Salary
Basic salary is the fixed core of an employee's pay, before allowances — and the figure most statutory calculations in India are computed on.
TDS (Tax Deducted at Source)
TDS is income tax an employer withholds from salary each month and pays to the government on the employee's behalf, rather than the employee paying it in a lump sum at year end.
Form 16
Form 16 is the certificate an employer issues each year summarising the salary paid to an employee and the tax deducted from it, used to file an income tax return.