Which cities are considered metro cities for HRA calculation?

By
Rajat Piplewar

Understanding House Rent Allowance (HRA) and Its Tax Implications in Noida Electronic City

House Rent Allowance (HRA) is a crucial part of most salaried individuals’ compensation packages. It offers significant tax benefits, but the extent of these benefits can vary depending on whether you live in a metro or non-metro city. This article delves into the specifics of HRA, focusing on its implications for residents of Noida Electronic City.

What is House Rent Allowance (HRA)?

HRA is a salary component provided by employers to employees to cover their rental expenses. The good news is that HRA is not entirely taxable. Under Rule 2A of the Income Tax Rules (ITR) 1962, salaried individuals can claim the lowest of the following amounts as tax deductions:

  • The actual HRA received
  • 50% of the basic salary plus dearness allowance (DA) if living in a metro city; 40% for non-metros
  • Actual rent paid minus 10% of the basic salary plus DA

Metro vs. Non-Metro Cities for HRA Calculation

Metro Cities

For HRA calculation purposes, only four cities are considered metro cities:

  • Delhi
  • Mumbai
  • Kolkata
  • Chennai

Non-Metro Cities

Cities that are part of the National Capital Region (NCR) and Mumbai Metropolitan Region (MMR) are not considered metro cities for HRA tax calculation. This includes:

  • Noida
  • Gurgaon
  • Faridabad
  • Navi Mumbai
  • Thane
  • Bangalore
  • Hyderabad
  • Pune
  • Ahmedabad

Despite their high rental values, these cities can only claim 40% of the basic salary as tax-exempt HRA.

HRA Calculation Examples

Metro City Example

Let’s consider Rajat Makhija, who lives in Delhi. His basic monthly salary is Rs 50,000, and he receives Rs 18,000 as HRA. He pays Rs 15,000 as monthly rent. The deduction will be the least of the following amounts:

  • 50% of his basic salary: Rs 25,000
  • Actual HRA: Rs 18,000
  • Actual rent minus 10% of the basic salary: Rs 10,000

In this case, the least amount is Rs 10,000, making his annual deduction Rs 1.20 lakh.

Non-Metro City Example

Now, let’s look at Avani Pathak, who lives in Lucknow. Her basic salary is Rs 20,000, and she receives Rs 7,000 as HRA. She pays Rs 6,000 as monthly rent. The deduction will be the least of the following amounts:

  • 40% of her basic salary: Rs 8,000
  • Actual HRA: Rs 7,000
  • Actual rent minus 10% of the basic salary: Rs 4,000

Here, the least amount is Rs 4,000, making her annual deduction Rs 48,000.

HRA in Noida Electronic City

Noida Electronic City, part of the NCR, is classified as a non-metro city for HRA purposes. This means residents can only claim 40% of their basic salary as tax-exempt HRA, even though rental costs can be quite high.

Required Documents to Claim HRA

To claim HRA, you need to provide the following documents:

  • Rent receipt
  • Rental agreement
  • Letter from the landlord confirming the rental arrangement
  • Proof of rent payment
  • Form 12BB salary slip
  • PAN card of both the tenant and the landlord

Who Cannot Claim HRA?

Self-employed individuals generally cannot claim HRA as this benefit is reserved for salaried employees. However, they can claim deductions under Section 80GG of the Income Tax Act, 1961.

Conclusion

Understanding the nuances of HRA can significantly impact your tax savings. While residents of Noida Electronic City can only claim 40% of their basic salary as tax-exempt HRA, knowing the rules and having the right documentation can help maximize your benefits. So, keep these guidelines in mind and make the most of your HRA.

Got any questions or points of view on our article? We would love to hear from you. Write to our Editor-in-Chief Rajat Piplewar at rajat@bhume.in.

FAQ