Q.Mr. X is employed in Kolkata. During the previous year 2025-26, he received Basic Salary of ₹30,000 per month and Dearness Allowance of ₹10,000 per month (forming part of salary for retirement benefits). He also received House Rent Allowance of ₹12,000 per month and paid rent of ₹15,000 per month for a flat in Kolkata. Compute the amount of HRA exempt from tax and the amount taxable, for AY 2026-27.

The HRA exemption is always the LEAST of three specified amounts, and Kolkata counts as a metro city for this computation.

"Salary" for HRA = Basic + DA = ₹3,60,000 + ₹1,20,000 = ₹4,80,000 for the year. The three amounts compared are ₹1,44,000 (actual HRA received), ₹1,32,000 (rent paid ₹1,80,000 minus 10% of salary ₹48,000), and ₹2,40,000 (50% of salary, since Kolkata is a metro city). The least of these is ₹1,32,000.

"Salary" for the HRA exemption under Section 10(13A) read with Rule 2A means Basic Salary plus DA, since DA here forms part of salary for retirement benefits: ₹30,000 × 12 + ₹10,000 × 12 = ₹3,60,000 + ₹1,20,000 = ₹4,80,000 for the year.

The exemption is the LEAST of:

1. Actual HRA received = ₹12,000 × 12 = ₹1,44,000
2. Rent paid minus 10% of salary = (₹15,000 × 12) − (10% × ₹4,80,000) = ₹1,80,000 − ₹48,000 = ₹1,32,000
3. 50% of salary (Kolkata is a metro city for this purpose) = 50% × ₹4,80,000 = ₹2,40,000

The least of ₹1,44,000, ₹1,32,000 and ₹2,40,000 is ₹1,32,000 — this is the exempt HRA. The balance of the HRA actually received is taxable: ₹1,44,000 − ₹1,32,000 = ₹12,000.

A frequent error is computing 10% or 50% of ONLY the Basic Salary and forgetting to add DA (when DA forms part of retirement benefits) before applying these percentages — always build the correct "salary" figure first, then apply all three tests to that same figure.