What is HRA?
House Rent Allowance (HRA) is a component of salary provided by employers to employees for meeting rental expenses. Under Section 10(13A), a portion of HRA can be claimed as tax exemption if you are living in a rented accommodation.
Important: HRA exemption is only available in the Old Tax Regime.
HRA Exemption Calculation Formula
HRA exemption is the minimum of the following three amounts:
Actual HRA received from employer
50% of salary for metro cities (Delhi, Mumbai, Chennai, Kolkata) or 40% of salary for non-metro cities
Rent paid minus 10% of salary
Definition of Salary for HRA
Salary = Basic Salary + Dearness Allowance (if part of retirement benefits)
Metro vs Non-Metro Cities
| City Type | Percentage of Salary |
|---|
| Metro (Delhi, Mumbai, Chennai, Kolkata) | 50% |
| Non-Metro (All other cities) | 40% |
Practical Examples
Example 1: Employee in Mumbai (Metro City)
| Component | Amount (Annual) |
| Basic Salary | Rs 6,00,000 |
| HRA Received | Rs 3,00,000 |
| Rent Paid | Rs 2,40,000 |
Calculation:
Actual HRA = Rs 3,00,000
50% of Salary = Rs 3,00,000
Rent - 10% of Salary = Rs 2,40,000 - Rs 60,000 = Rs 1,80,000
HRA Exemption = Rs 1,80,000 (minimum of the three)
Example 2: Employee in Pune (Non-Metro City)
| Component | Amount (Annual) |
| Basic Salary | Rs 8,00,000 |
| HRA Received | Rs 4,00,000 |
| Rent Paid | Rs 1,80,000 |
Calculation:
Actual HRA = Rs 4,00,000
40% of Salary = Rs 3,20,000
Rent - 10% of Salary = Rs 1,80,000 - Rs 80,000 = Rs 1,00,000
HRA Exemption = Rs 1,00,000 (minimum of the three)
Example 3: Living in Own House
If you live in your own house or with parents (not paying rent), HRA exemption is zero. The full HRA received becomes taxable.
HRA for Self-Employed Individuals
Self-employed individuals cannot claim HRA exemption under Section 10(13A). However, they can claim rent paid under Section 80GG with the following conditions:
- Not receiving HRA
- Not owning any residential property at the place of employment
- Maximum deduction: Rs 60,000 per year or 25% of income (whichever is lower)
Documents Required for HRA Claim
- Rent Receipts: Monthly receipts with landlord's signature
- Rent Agreement: Copy of rental agreement
- Landlord's PAN: Mandatory if annual rent exceeds Rs 1,00,000
- Declaration: If landlord doesn't have PAN
Rent Receipt Format
A valid rent receipt should contain:
- Tenant's name
- Landlord's name and address
- Property address
- Rent amount and period
- Revenue stamp (for amounts above Rs 5,000)
- Landlord's signature
Can You Claim HRA for Rent Paid to Parents?
Yes, you can claim HRA exemption for rent paid to your parents, provided:
- You actually pay rent (bank transfer is preferable)
- Parents declare this rental income in their ITR
- Parents own the property
- You have rent receipts and agreement
HRA Claim for Working Couple
If both spouses are salaried and receive HRA:
- Both can claim HRA exemption
- Rent can be split between them
- Proportionate claim based on rent agreement
Common Mistakes to Avoid
- Claiming without paying rent: False claims attract penalties
- No landlord PAN for rent above Rs 1 lakh: Claim may be rejected
- Not matching with Form 12BB: Declare correctly to employer
- Claiming in new tax regime: HRA exemption not available
- Wrong city classification: Know if your city is metro or not
HRA vs Home Loan
Can you claim both HRA and home loan benefits?
Yes, if:
- You are paying rent in one city for work
- Your home (with loan) is in another city
- Or your home is under construction
You can claim:
- HRA exemption for rent paid
- Home loan interest under Section 24 (up to Rs 2 lakh)
- Home loan principal under Section 80C (up to Rs 1.5 lakh)
Tax Saving Potential
| Rent Paid (Monthly) | Annual Exemption* | Tax Saved (30% slab) |
| Rs 15,000 | Rs 1,20,000 | Rs 37,440 |
| Rs 25,000 | Rs 2,40,000 | Rs 74,880 |
| Rs 40,000 | Rs 3,60,000 | Rs 1,12,320 |
*Assuming conditions are met
Conclusion
HRA exemption is a significant tax-saving opportunity for salaried employees in the old tax regime. Ensure you maintain proper documentation and calculate your exemption correctly.
Use our HRA Calculator to instantly calculate your HRA exemption.