House Rent Allowance (HRA) is a payment made by the employer to the employee as a part of salary, which allows the employee to claim income tax savings for the rent paid for living in a rented accommodation.
As per law, only salaried individuals who stay in rented accommodations are eligible for HRA. Self-employed persons or employees of an organisation having their own houses are not eligible to avail tax benefit under HRA.
HRA serves as a medium of reducing the taxable income, thus reducing an individual’s tax liability.
The following main factors affect HRA: - Gross salary of the employee - Rent paid - City of residence