What is House Rent Allowance: HRA Exemption, Tax Deduction, Rules & Regulations

HRA full form stands for House Rent Allowance. HRA is often a part of the employee's CTC which can be used to avail tax benefits under Section 10(13A) of the Income Tax Act. Proper rent receipts and documentation are essential to claim this benefit. However, this deduction is available only under the old regime.

HRA Calculation

Least of the following is exempt:

•  Actual HRA received 
• Rent paid minus 10% of basic pay
• 50%  / 40% of basic pay (depending on whether metro or non-metro city)

What is HRA?

House Rent Allowance is a salary component paid by the company to help employees meet rental expenses. While HRA is taxable, a portion of it can be exempt under the old tax regime as per Section 10(13A) of the Income Tax Act. HRA exemption is not available under the New Tax Regime, making the entire allowance fully taxable.

Who can Claim HRA Exemption?

Both salaried taxpayers and self employed taxpayers can claim deduction for house rent allowance.

HRA for Employed Taxpayers

It is usually perceived that only salaried class can enjoy the tax benefits related to HRA. But any individual can avail tax benefits related to HRA. 

• Exemption is allowed under section 10(13A) for salaried employees who receive HRA.  
• HRA calculated under this section is not included in salary of the taxpayer.

HRA for Self - Employed Taxpayers

If you are not a salaried employee, still want to claim HRA, you can claim deduction under section 80GG.

HRA Exemption Limits

As per Rule 2A the lowest of the following amounts can be claimed as HRA exemption u/s 10(13A):

Note: Salary here means Basic + Dearness Allowance + Commission as a percentage of turnover. 

HRA Exemption Example

Mr. Anwar, employed in New Delhi, has taken up an accommodation on rent for which he pays Rs. 10,000 per month during the FY 2024-25. He receives a basic salary of Rs. 25,000 monthly and DA of Rs. 2,000, which forms a part of the salary. He also gets an HRA of Rs. 1 lakh from his employer during the year.

Let us understand the HRA component that would be exempt from income tax during FY 2024-25. As per the given data, calculate the following:

HRA exemption would be the lowest of the following:

The entire rent amount of Rs.1.2 lakhs paid by Mr. Anwar is not directly exempt. It involves calculations, and the lowest of the three calculated amounts will be exempt from income tax. Also as Mr. Anwar stays in New Delhi which is a metro city, 50% of Basic and DA will be considered for calculation purposes and not 40%. 

As the HRA received is Rs. 1 lakhs the entire HRA component will not be exempt for Mr. Anwar. The exemption will be the least i.e., Rs. 87,600. The remaining HRA component will be taxed at applicable slab rates. This is only if Mr. Anwar opts for the Old Tax Regime. 

This exemption will not to available to Mr. Anwar under the New Tax Regime implying that the entire HRA of Rs. 1 lakhs will be taxed at applicable slab rates.  

HRA Calculator

Try out our free HRA calculator to determine your HRA exemption. This calculator shows you on what part of your HRA you have to pay taxes – i.e. how much of your HRA is taxable and exempt from tax.

How to Claim HRA u/s 10(13A)?

To claim HRA exemption under Section 10(13A), you must meet these conditions:

• You must be a salaried employee.
• You should live in a rented house.
• HRA must be included in your salary (CTC).
• You need to submit valid rent receipts and proof of rent payment.

The HRA exemption calculation will depend on various factors like salary, rent paid, HRA received by the employee and city of residence of employee.

Documents Required to Claim HRA

The following are the important documents required to claim HRA. There is no necessity to submit all the supporting documents along with the income tax return. But for submission of proofs to the employer, and to respond to the department in case of any notices, the following documentation is recommended.

• Rent Receipts
• Rental Agreement
• Form 12BB
• Bank payment proof for rent
• Salary slip where HRA is incorporated
• PAN of landlord - if the rent exceeds Rs.1 Lakh per annum. Else, you may lose out on the HRA exemption.

Landlords without a PAN must sign a self declaration stating he does not have a PAN, as per circular No. 8/2013 dated 10 October 2013.