5 Things You Must Know About The Most Common Allowance – HRA

Updated on: Jun 28th, 2024


3 min read

You may be receiving the House Rent Allowance (HRA) as a part of your salary package. If you receive HRA and pays rent then there is an HRA exemption that you can claim to save taxes. Refer this article to know about 5 most important points about HRA Deduction. 

#1 HRA is Not Aways Fully Deductible 

The HRA (House Rent Allowance) allowance you receive from your employer is not always fully tax-exempt. It may be fully or partially exempt from tax depending on certain condtions.

Out of the HRA received, the least of the following three amounts is taken to be exempt from tax. The remainder of your balance from HRA is added back to your taxable salary.

  1. HRA received from your employer
  2. Actual rent paid less 10% of Salary*
  3. 50% of Salary* for those living in metro cities (40% for non-metro cities)

*Salary for this purpose means basic salary, dearness allowance if provided in terms of employment and commission as a fixed percentage of turnover.

So, if your rent payment is less than 10% of Salary, there will be no exemption on the HRA and the whole amount will be taxable.

In case you opt for new-tax regime, no exemption will be available to you and the whole of the amount received as HRA will be taxable.

Try out our free HRA calculator here.

#2 You can Claim HRA by Paying Rent to your Parents

If you don’t live in a rented accommodation but live with your parents, and your employer provides you HRA, you can still take benefit of this allowance. For this though, 

  • Your parents must be owners of the property you live in 
  • You must pay the rent to your parents
  • Your parents must show this in their income tax return as rental income. 
  • The maximum exemption will still be based on the above limits mentioned in point 1.

Read more on claiming HRA by paying rent to your parents.

#3 HRA can be Claimed Directly in your Income Tax Return

Forgot to submit the rent receipts to your employer at the time of proof submission? Well, you can still claim exemption on HRA while filing your income tax return. Adjust your taxable income to include the benefit from HRA. If tax has been deducted by your employer in excess, you can always claim a refund of the same.

#4 Compulsory to Submit Landlord’s PAN

PAN of Landlord is compulsory to submit if the rent payment to your landlord exceeds Rs.8,333 per month. A new notification from the Income Tax Department requires all tenants who pay rent in excess of Rs.1,00,000 per year to mention landlords’ PAN is compulsorily to be mentioned in your income tax return. This is to deter landlords’ from hiding rental income and to deter employees from claiming excess rent as deduction than the actual payment. Read more on this.

#5 HRA along with Interest on Home Loan

Homeowners paying back interest on their home loan and getting HRA as part of their salary can avail both the house property-related tax benefits i.e., (i) Can claim the interest deduction on loan under the House Property head and (ii) Claim HRA exemption on rent payments to lower their taxable income. However, there are certain conditions to be fulfilled to claim the dual benefit. Want to know about other allowances that are part of your payslip. Read more on our Salary guide here.

Note: If you are living on rent and do not receive HRA as a part of your salary, then you can claim a similar deduction under section 80GG. Find out complete details here.

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Frequently Asked Questions

When can I claim tax exemption on house rent allowance?

You can only claim tax exemption on HRA if the HRA component is a part of your salary and you are paying rent for your residential accommodation.

How can I claim an HRA exemption?

You can claim HRA exemption by submitting proof of rent receipts to your employer. Alternatively, you can claim the HRA exemption yourself while filing your income tax return, if you forgot to submit the rent receipts with your employer.

I am a self-employed individual. Can I claim an HRA exemption?

A self-employed individual cannot claim an HRA exemption. Only a salaried individual with an HRA component in their salary package can claim an HRA exemption. 

Can I claim both 80GG and HRA?

No, Individuals paying rent but not receiving house rent allowance can claim a deduction under Section 80GG. Also, the individual, spouse or children should not own a house property in the place of employment, business or location where the individual ordinarily resides for claiming this deduction. 

What are the cities covered in 50% limit for the HRA?

The cities covered in 50% limit for the HRA are Delhi, Mumbai, Kolkata, and Chennai.

Is Bangalore/Hyderabad/Pune/Ahmedabad not considered as metro cities for considering 50% limit on HRA exemption?

No, these cities are not considered as metro citie for considering 50% limit on HRA exemption.

Is HRA Exemption available under the new regime of tax?

No, HRA Exemption is not available in the new regime of tax. 


Quick Summary

HRA can save taxes through exemptions. Ensure to follow rules to claim deduction.

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