House Rent Allowance (HRA) – Exemption, Calculation and New Income Tax Rules 2026

House Rent Allowance (HRA) is a salary component to help employees cover their residential rental expenses. It forms a significant part of the employee's cost to company (CTC) and plays a significant role in tax planning. HRA can be used to claim income tax exemption, on satisfaction of certain criteria.

Key Highlights

• HRA exemption is only available under the Old Tax Regime.
• HRA cannot be claimed if the taxpayer lives in a property owned by them.
• The new Income Tax Rules 2026 have made beneficial changes in HRA rules. 

What is HRA?

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. As per the provisions of the Income Tax Act, you can claim tax benefits using your HRA, on satisfaction of various criteria, prescribed under the act and the rules. 

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 Exemption Formula

HRA exemption amount is the lowest of the following:

1. Actual HRA received from employer, or
2. 50% of basic salary (For specified 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 Calculation

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 2025-26. He receives a basic salary of Rs. 27,000 monthly. He also gets an HRA of Rs. 1 lakh from his employer during the year.

HRA exemption would be the lowest of the following:

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  of Rs. 12,400 (Rs. 1 lakh - Rs. 87,600) will be taxed at applicable income tax slabs. 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 Exemption Calculator

Confused with all the math? Use ClearTax's HRA calculator and know how much you can save.

HRA Exemption Under New Income 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.
• Hyderabad, Pune, Ahmedabad and Bengaluru also have been included under the 50% exemption category. 
• Thus, a total of 8 cities are now eligible for 50% HRA exemption:
  • Delhi, 
  • Mumbai, 
  • Chennai, 
  • Kolkata,
  • Bengaluru, 
  • Pune, 
  • Hyderabad, and 
  • Ahmedabad.

Special Cases Where HRA Exemption Can be Claimed

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. 

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

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. 

What Documents are 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. 
  • 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.

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.