House Rent Allowance (HRA) Exemption: Rules, Calculation & Tax Benefits

If you are a salaried individual, you have likely come across the term HRA in your salary slip. HRA full form is House Rent Allowance, a salary component provided by the employer 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. 

House Rent Allowance is a taxable income, the Income Tax Act offers considerable relief to taxpayers. Under Section 10(13A) of the Income Tax Act, a portion of HRA can be claimed as an exemption, effectively reducing the taxable income. However, the HRA exemption is only available under the Old Tax Regime. Taxpayers opting for the New Tax Regime cannot claim an HRA exemption, making it fully taxable. 

Draft Income Tax Rules 2026 Update

• The draft income tax rules makes it mandatory to disclose the relationship between the landlord and tenant for claiming HRA benefit.
• Hyderabad, Pune, Ahmedabad and Bengaluru also to be included under the 50% category. 

Who is Eligible to Claim HRA Exemption? 

HRA exemption can be claimed if you satisfy the following conditions:

• Must be a salaried employee
• HRA must be a component of your CTC
• Must live in a rent accommodation 
• Must pay rent and maintain proper proofs
• Must file taxes under the old tax regime

What is HRA Exemption Limit?

HRA received can be claimed as a tax exemption, however the exemption is limited to certain threshold and is not fully tax-exempt unless specific conditions are met. 

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 (Non-metro 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. 

How is HRA Exemption Calculated?

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

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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?

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.

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 & HRA: Taxpayers can claim both interest deduction and HRA exemption, if you own a house in one city but pay rent in another city due to work.

Section 80GG of The Income Tax Act

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.