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

House Rent Allowance (HRA) is a common component of many salary packages, but not all of it is exempt from tax. To determine how much of your HRA you can actually claim as a tax exemption under Section 10(13A) of the Income Tax Act.

The exempt amount is the lowest of the following is allowed as a deduction:

• Actual HRA received from your employer
• 50% of [Basic Salary + DA] or 40% for non-metro cities
• Rent paid minus 10% of [Basic Salary + DA]

Let's understand the HRA exemption in detail.

House Rent Allowance Exemption

House Rent Allowance (HRA) is a part of your salary that your employer gives to help you pay for rent.

• Not all the HRA you received is always exempt from income tax. HRA is a part of your salary income and therefore, it is initially considered as your taxable income.
• However, you can claim a tax exemption either – partially or wholly under Section 10(13A) of the Income Tax Act. This is popularly known as HRA exemption. 
• If you live in your own property(not living in rentals), this allowance is fully taxable.

Please note that the tax exemption of house rent allowance is not available in case you choose the new tax regime. 

Who can Claim HRA Tax Benefits?

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.

Conditions for Claiming HRA Exemption 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.

How to Calculate HRA Exemption?

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

• Actual HRA received 
• 50% of [basic salary + DA] for those living in metro cities (Delhi, Kolkata, Mumbai or Chennai)
• 40% of [basic salary + DA] for those living in non-metros
• Actual rent paid (-) 10% of [basic salary + DA]

Illustration

Mr Anwar, employed in New Delhi, has taken up an accommodation on rent for which he pays Rs.15,000 per month during the Financial Year (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 would be the lowest of the following:

• HRA received – Rs.1 lakh
• 50% of basic salary and DA – Rs.1,62,000 (50%*(Rs 25,000+Rs 2,000)*12 months)
• Rent paid minus 10% of salary- Rs.1,47,600 

Therefore, the entire rent amount of Rs.1,80,000 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.

Therefore, the entire HRA received from the employer is exempt from income tax.

HRA Calculator

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.

Can I Claim HRA and Deduction on Home Loan Interest?

Yes, you may claim both HRA exemption and home loan interest deduction.

There can be two situations where you are living in a rented house while owning a house. 

Rented House and the Own House are Located in the Same City

Here, you need to justify the claim of deduction with valid reasons, i.e., why you are not living in your own house. One case may be that the office location is very far from the house you own. This way, you can claim both HRA and Home loan benefits subject to the fulfilment of applicable conditions.

How to Claim HRA When Living With Parents?

Let’s understand this with an example.

Samiksha works in an MNC in Bangalore. Though her company provides her with HRA, she lives with her parents in their house and not in rented accommodation. How can she make use of this allowance?

Samiksha can pay rent to her parents and claim the allowance provided. She has to enter into a rental agreement with her parents and transfer money to them every month. Also, Samiksha’s parents need to report the rent paid by their daughter as their income in their income tax return. They can save tax on the family income if their other income is below the basic exemption limit or taxable at a lower tax slab.

Things that are necessary in this arrangement

• Rental agreement 
• Transfer of rent amount, preferably via bank transfer
• Reporting of rental income by their parents by filing an income tax return.

Also read about: 
Basic Salary 
UAN Login 
Last Date to File ITR  
Section 115BAC of Income Tax Act  
Income Tax Deductions List 
How to e verify ITR  
Annual Information Statement (AIS) 
Section 80D  
Home Loan Tax Benefit 
Leave Travel Allowance