If you have ever checked your salary slip closely, you may have noticed a component called House Rent Allowance (HRA). Typically, it is included in every salaried employee’s compensation package. HRA offers dual benefits: it covers rental expenses and helps you save on taxes. To take full advantage of it, you need to understand what HRA is, what the eligibility criteria for HRA are, how to calculate HRA, and how to claim HRA when filing income tax return (ITR).
Like what you're reading?
Get our latest, straight to your inbox.
What is House Rent Allowance (HRA)?
As the name suggests, House Rent Allowance (HRA) is an allowance that an employer offers to employees to help cover their rental costs. Even though it is part of your salary, the entire HRA amount is not taxable. Under Section 10(13A) of the Income Tax Act, 1961, a portion of the HRA can be exempt from income tax if it meets certain conditions. This provision aims to provide tax relief to employees who have rental expenses.
Who can claim HRA?
To claim the benefits of HRA exemption according to Section 10(13A), you must fulfil the following conditions:
1) You should be a full-time salaried individual with an HRA component in your salary package.
2) You should stay in a rented residential property, such as a house, flat, or apartment, that is not your own.
3) You should be paying rent, and the rent receipts must be issued in your name.
Keep in mind that you can avail of HRA exemption if you choose the old tax regime when filing your ITR.
How to calculate HRA exemption
To determine the tax-exempt portion of your HRA, the lowest of the following amounts is considered under Section 10(13A) of the Income Tax Act, 1961:
1) The actual amount of HRA received from your employer.
2) The city where you reside. If you live in a metro city—Delhi, Mumbai, Kolkata, or Chennai—50% of your basic salary will be considered for HRA calculation. If you reside in non-metro cities, only 40% of the basic salary will be considered for this calculation.
3) The actual rent paid minus 10% of your basic salary. Calculate the rent you have paid over the year and subtract 10% of your basic salary; that amount will be considered for HRA exemption purposes.
Example of HRA calculation
Assume Akshat works at a multinational corporation in Mumbai. Here are the components of his annual salary for the financial year 2024-25.
Basic salary: ₹6,00,000/year
HRA received: ₹2,40,000/year
He stays in a rented apartment in Mumbai, for which he pays an annual rent of ₹2,16,000.
To find out the tax-exempt portion of his HRA under Section 10(13A) of the Income Tax Act, we consider the following three amounts:
- Actual HRA received: ₹2,40,000
- 50% of basic salary for metro city: 50% of ₹6,00,000 = ₹3,00,000
- Rent paid – 10% of basic salary: ₹2,16,000 – 10% of ₹6,00,000 = ₹2,16,000 – ₹60,000 = ₹1,56,000
The least of the above three amounts is ₹1,56,000. This amount will be exempt from income tax, providing Akshat with tax relief based on his rental expenses.
As you can see, the entire rent amount of ₹2,16,000 paid by Akshat is not directly exempt from tax. However, a part of the HRA is tax-exempt according to the formula. Therefore, he receives an HRA exemption of ₹1,56,000. The remainder of the HRA amount, i.e., ₹2,40,000 – ₹1,56,000 = ₹84,000, is taxable.
| Particulars | Amount in ₹ |
| Actual HRA received | ₹2,40,000 |
| HRA exemption | (₹1,56,000) |
| Taxable HRA | ₹84,000 |
HRA calculator
Do you want to find out how much HRA exemption you are eligible for the financial year 2024-25?
Check it with our HRA calculator. It considers factors like your basic salary, HRA received, rent paid, and city of residence to determine the tax-exempt portion of your HRA.
Documents required to claim HRA exemption
To claim HRA, you need to keep documents proving your rent payments. Employers usually ask for these documents before the financial year ends to prevent full TDS from your salary. While you don’t need to submit these documents with your income tax return, it is important to maintain them. In case you receive a tax notice later, you may be required to submit these documents to the Income Tax Department.
Here are the documents you need to claim HRA:
1) Rent receipts that clearly mention the landlord’s name, address, amount of rent paid, and the duration (month or period) for which the rent was paid. These receipts serve as primary evidence of your rental arrangement.
If the total annual rent paid exceeds ₹1 lakh, you must obtain and submit the landlord’s Permanent Account Number (PAN) to your employer.
2) It is also advisable to maintain proof of rent payment, such as bank statements, UPI transaction records, or physical payment receipts, to further support your claim in case of scrutiny or verification by the tax authorities.
If your monthly rent does not exceed ₹3,000, you can claim HRA exemption without submitting rent receipts, as per Rule 2A of the Income Tax Rules.
Can you claim HRA exemption under new and old tax regimes for FY 2024-25?
Remember that you can claim HRA if you file your FY 2024-25 income tax return. There is no provision to claim HRA under the new tax regime.
Frequently Asked Questions (FAQs) on HRA exemption
When can I claim a tax exemption on House Rent Allowance (HRA)?
You can claim a tax exemption on your House Rent Allowance (HRA) if you are a salaried employee who has HRA as part of your salary and pays rent for your accommodation.
What is the current HRA limit?
As per Section 10(13A) of the Income Tax Act, an employee is eligible to claim a House Rent Allowance deduction maximum up to the actual HRA component that is received from his/her employer.
Can I claim 100% of the HRA amount?
According to Section 10(13A) of the Income Tax Act, 1961, you can claim the lowest of the following amounts as HRA:
- The actual HRA amount you receive from your employer.
- If you live in a metro city—Delhi, Mumbai, Kolkata, or Chennai—you can claim 50% of your basic salary. If you live in a non-metro city, you can claim 40% of your basic salary.
- The actual rent paid minus 10% of your basic salary.
Who is not eligible for HRA?
Self-employed professionals or business owners are not eligible for HRA since they do not receive it as part of their salary from an employer. You cannot claim an HRA exemption if it is not a part of your salary.
Can I claim an HRA exemption if I own a house?
Yes, you can claim HRA exemption even if you own a house, as long as you meet the eligibility criteria mentioned above. For example, if you own a house in Delhi but are living in a rented apartment in Mumbai, you can still claim HRA exemption on the amount of HRA you receive as part of your salary.
Can I claim HRA if I am living in my parent’s house?
Yes, you can claim HRA as a tax deduction even if you live in your parent’s house. To do this, you must sign a rental agreement with your parents and pay them monthly rent. You must keep rental receipts under your name to claim HRA exemption. Ensure you meet the above eligibility criteria and receive HRA as part of your salary.
Can self-employed individuals claim HRA for rented accommodation?
According to Section 80GG of the Income Tax Act, individuals who pay rent for their housing but do not receive House Rent Allowance (HRA) from their employer can get tax relief. Self-employed individuals cannot claim HRA but can receive tax deductions for rented accommodation under Section 80GG.
Can I claim HRA if it is not a part of my salary?
You cannot claim HRA if it is not included in your salary. However, you can still claim tax deductions for your rented accommodation under Section 80GG.
Is HRA taxable?
As per Section 10 (13A), rule number 2A of the Income Tax Act, salaried individuals are eligible to claim HRA exemptions.
Is HRA part of Section 80C?
No, House Rent Allowance or HRA is claimed under Section 10(13A), not Section 80C.
