How is Housing Rent Allowance calculated?

There are three factors that are taken into consideration while computing HRA:

First, The rent allowance that your employer provides you.  

Second, the actual rent you pay in a year minus 10 per cent of your annual salary.

And the third, depends on where you live - 50 percent of basic salary in the case of metros and 40 percent in the case of non-metro cities.

The lowest value among the three becomes your HRA exemption.