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HRA

Tax

House Rent Allowance

A salary component paid by employers to help employees meet rental expenses. The amount exempt from income tax is determined by a specific formula under the Income Tax Act.

Definition

House Rent Allowance (HRA) is a component of a salaried employee's compensation package provided by an employer to help cover rental expenses. While the entire HRA amount is paid by the employer, only a portion of it is exempt from income tax under Section 10(13A) of the Income Tax Act, 1961.

The extent of HRA exemption depends on three factors: the city you live in (metro vs non-metro), your basic salary, and the rent you actually pay. The taxable portion of HRA is added to your gross income and taxed at the applicable slab rate.

HRA exemption is only available under the old tax regime. If you opt for the new tax regime, you cannot claim HRA exemption but may benefit from lower slab rates.

Formula

The HRA exemption is the lowest of the following three values:

  1. Actual HRA received from the employer
  2. 50% of basic salary (for those living in metro cities: Delhi, Mumbai, Kolkata, Chennai) or 40% of basic salary (for non-metro cities)
  3. Actual rent paid minus 10% of basic salary

Tax-exempt HRA = min(A, B, C)

The balance (HRA received minus the exempt amount) is added to taxable income.

Worked Example

Suppose your details are:

  • Basic salary: ₹60,000/month
  • HRA received: ₹25,000/month
  • Actual rent paid: ₹22,000/month
  • City: Mumbai (metro)

Calculating the three values:

  • A = ₹25,000 (actual HRA)
  • B = 50% × ₹60,000 = ₹30,000
  • C = ₹22,000 − (10% × ₹60,000) = ₹22,000 − ₹6,000 = ₹16,000

Tax-exempt HRA = min(₹25,000, ₹30,000, ₹16,000) = ₹16,000/month

The remaining ₹9,000/month (₹1,08,000/year) is added to taxable income. Use the HRA calculator to compute your exact exemption.

Key Things to Know

  • Rent to parents: You can pay rent to your parents and claim HRA if you genuinely live with them in rented accommodation. Ensure the rental agreement and actual bank transfers are in place; your parents must declare this rental income in their ITR.
  • Landlord's PAN: If annual rent exceeds ₹1 lakh, you must provide the landlord's PAN to your employer. Without it, the employer cannot grant the HRA exemption via Form 16.
  • TDS on salary: If HRA is not declared, TDS on salary will be higher. Submit rent receipts early in the financial year to your employer so they apply the exemption throughout the year rather than adjusting at year-end.
  • Metro vs non-metro: Metro cities for HRA purposes are Delhi, Mumbai, Kolkata, and Chennai only. Bengaluru, Hyderabad, Pune, and Ahmedabad are classified as non-metro for this calculation.
  • Interaction with Section 80C: HRA is separate from Section 80C deductions. Claiming HRA does not affect your 80C limit.

Related Calculators

HRA Exemption Calculator →Calculate your HRA exemption under Section 10(13A) for FY 2025-26. See exactly how much HRA is tax-free based on your city tier, rent paid, and basic salary.
Income Tax Calculator →Calculate income tax for FY 2025-26 under old and new tax regimes. Includes 87A rebate, surcharge, cess, and deductions (80C, 80D, HRA). India income tax.

Related Terms

TDSTax Deducted at SourceSection 80CSection 80C — Income Tax Deduction
Frequently Asked Questions
Who can claim HRA exemption?
Only salaried employees who receive HRA as part of their salary and live in rented accommodation can claim HRA exemption. Self-employed individuals cannot claim HRA, but can claim rent deduction under Section 80GG.
Can I claim both HRA and home loan interest deduction?
Yes, if you live in a rented house while your owned property (on which you have a home loan) is in a different city. You can claim HRA exemption for your rented residence and home loan interest under Section 24(b) for your owned property.
Do I need receipts to claim HRA?
If your annual rent exceeds ₹1 lakh, you must submit rent receipts and the landlord's PAN to your employer. For rent below ₹1 lakh per year, receipts are still advisable but some employers do not mandate them.
What happens if I choose the new tax regime?
Under the new tax regime (Section 115BAC), the HRA exemption is not available. The new regime offers lower tax slabs but removes most exemptions and deductions, including HRA, Section 80C, and LTA.
Is HRA fully exempt from tax?
No. The HRA exemption is the lowest of three calculated values — the actual HRA received, 40%/50% of basic salary, or actual rent paid minus 10% of basic salary. Only that portion is tax-exempt; the remainder is added to taxable income.