What is House Rent Allowance (HRA) - Exemption, Calculation & New Rules 2026

House Rent Allowance (HRA) is a component of an employee's salary paid by employers to cover rental accommodation costs. Under Section 10(13A) of the Income Tax Act, a portion of HRA is exempt from tax if the employee is salaried, lives in rented accommodation, and files Income Tax Return (ITR) under the old tax regime. HRA cannot be claimed under the new tax regime.

What is HRA?

HRA stands for House Rent Allowance. It is a salary component provided by employers to help employees meet rental housing expenses. Under Section 10(13A), a salaried employee living in rented accommodation can claim HRA as a partial tax exemption under the old income tax regime.

House Rent Allowance is an integral part of your salary structure, provided to cover the cost of accomodation. This is especially provided in big cities, where the rental expense is usually high. Though HRA cannot be claimed if you do not live in rental premises, you can claim HRA and home loan together, on satisfaction of certain conditions.

HRA Eligibility: Who Can Claim HRA Exemption?

The following table shows the persons eligible for claiming HRA:

How is HRA Exemption Calculated?

HRA exemption amount is the lowest of the following:

1. Actual HRA received from employer, or
2. 50% of basic salary (For metro cities) or 40% of basic salary (other cities), or
3. Rent paid minus 10% of basic salary 

In simple terms, the amount that can be claimed u/s 10(13A) as HRA exemption is least of the following:

Note: 

• Salary here means Basic + Dearness Allowance + Commission as a percentage of turnover. 
• Metro Cities include Delhi, Chennai, Mumbai, Kolkata, Bengaluru, Pune, Hyderabad, and Ahmedabad. 

HRA Exemption Under New Tax Rules 2026

The New Income Tax Rules, 2026 makes it mandatory to disclose the relationship between the landlord and tenant for claiming HRA benefit and the 50% HRA exemption has been extended to included four more cities i.e., Hyderabad, Pune, Ahmedabad and Bengaluru. Thus, a total of 8 cities are now eligible for 50% HRA exemption:

1. Delhi, 
2. Mumbai, 
3. Chennai, 
4. Kolkata,
5. Bengaluru, 
6. Pune, 
7. Hyderabad, and 
8. Ahmedabad.

Though the Income Tax Act 2025 takes effect from 01st April 2026, the provisions of the 1961 act applies for AY 2026-27, as it pertains to income earned up to 31st March 2026. 

Below is a comparison of section from the Income Tax Act with those in Income Tax Act 2026. 

Topic	The Income Tax Act 1961	The Income Tax Act 2025
House Rent Allowance Exemptions	Section 10(13A)	Section 11 read with schedule III
Rent deduction for self employed/ those without HRA	Section 80 GG	Section 84

HRA Exemption Calculation

Mr. Anwar, employed in a company, has taken up an accommodation on rent for which he pays Rs. 18,000 per month during the FY 2025-26. He receives a basic salary of Rs. 27,000 monthly. He also gets an HRA of Rs. 1.62 lakh from his employer during the year. 

Situation -1: Mr. Anwar living in Delhi

HRA exemption would be the lowest of the following:

In this case, the entire HRA received Rs. 1.62 lakhs is eligible for exemption, as it is the least figure. This is only if Mr. Anwar opts for the Old Tax Regime. 

Situation -2: Mr. Anwar living in a Tier 2 City (not metro cities)

HRA exemption would be the lowest of the following:

In this case, Rs. 1,29,600 is eligible for exemption, and the remaining amount Rs. 32,400 is taxable under the applicable income tax slabs.

Situation - 3: Mr. Anwar opted for the New 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 Exemption Calculator

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House Rent Allowance - Old vs New Tax Regime

• House rent allowance is a tax deduction option available exclusively under the old tax regime. Therefore, persons opting for the new tax regime are not eligible for HRA.
• The new tax regime offers relaxed slab rates with limited deductions, while the old regime offers a variety of deductions with less beneficial slab rates. 
• Therefore, it is recommended to opt for old regime if there is a significant rent outflow and resultant HRA exemption, along with other tax saving deductions. 
• If there is limited HRA exemption available due to less rent outflow, along with less tax saving deductions, the new regime are often beneficial. 

Documents Required to Claim HRA Exemption

• 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.
• The following are the important documents required to claim HRA. 
  1. Rent Receipts
  2. Rental Agreement
  3. Form 12BB
  4. Bank payment proof for rent
  5. Salary slip where HRA is incorporated
  6. 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.

How to Claim HRA Exemption?

To be able to claim an exemption for the HRA component, it is important for you to file your ITR within the specified due date. The exemption should be clearly shown in the ITR form. Make sure to provide proof to HR to reduce monthly TDS. 

Special Cases Where HRA Exemption Can be Claimed

1. Paying rent to Parents

You can claim an HRA exemption if you are paying rent to your parents. However, it is important to make sure that it is disclosed as rental income in your parent's ITR. 

2. Home Loan Interest Deduction and HRA Exemption

If you own a house in one city but pay rent in another city due to any reasons, you can claim both HRA and home loan interest deductions in your ITR

House Rent Deduction for Self-Employed Taxpayers

Section 80GG of the Income Tax Act allows taxpayers without HRA component but paying rent to claim a deduction against the rental expense incurred. However, the deduction is limited to specified threshold. 

However, a maximum deduction of Rs. 60,000 can be claimed in a year under Section 80GG under the old tax regime only. Section 80GG deduction is not available under the new tax regime. 

Eligibility under Section 80GG

Self employed individuals, and employees who do not receive HRA as a part of their CTC are eligible for deduction under section 80GG. Taxpayers opting for the new regime are not eligible for section 80GG deduction.

Section 80GG Formula

The lowest of these will be considered as the deduction. 

• Rs.5,000 per month or 60,000 per year
• 25% of the total income before allowing deduction under this section
• Actual rent less 10% of income before allowing deduction under this section.