House Rent Allowance (HRA) is a component of many salaried employees’ salary structures, provided by employers to help cover rental accommodation costs. Under India’s income tax laws, individuals can claim a tax exemption for HRA (or part of it) if they live in a rented house and receive HRA. But the exemption isn’t automatic; the amount exempt depends on factors such as the actual HRA received, the rent paid, the employee’s salary (basic + dearness allowance), and whether the employee lives in a “metro” city or not. The rules are defined under Section 10(13A) of the Income Tax Act and Rule 2A of the Income Tax Rules.

What is House Rent Allowance (HRA)?

HRA is the allowance portion of salary paid by an employer to an employee living in a rented accommodation. It is intended to help cover rent expenses. While the full HRA is paid by the employer and appears in the salary slip, only a portion of it can be exempt from tax under prescribed rules, provided certain conditions are met.

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Who is eligible to claim HRA exemption?

You can claim HRA exemption if you:

Are a salaried employee and have HRA component in your salary.
Live in a rented accommodation and pay rent (to a landlord) for that accommodation.
Receive HRA from your employer (for exemption under Section 10(13A)).
If you don’t receive HRA but pay rent, you may claim a deduction under Section 80GG (for self‑employed or others).

HRA Exemption Rules

The amount of HRA exemption you can claim is the least of the following three amounts:

The actual HRA received from your employer (for the year).
Actual rent paid minus 10% of (Basic Salary + Dearness Allowance + Commission, if applicable).
For metro city residents: 50% of (Basic Salary + Dearness Allowance); for non‑metro: 40%.
These rules stem from Section 10(13A) and Rule 2A of the Income Tax Rules.

Calculation of HRA – Step by Step

Step 1: Determine components

Basic Salary + Dearness Allowance (DA) + Commission (if included).
HRA amount received for the year (monthly HRA × 12).
Actual rent paid during the year for the accommodation (monthly rent × 12).
Know whether your residence is in a “metro” city (usually Mumbai, Delhi, Kolkata, Chennai) or a non‑metro.

Step 2: Compute the three heads

Head A: Actual HRA received.
Head B: Actual rent paid – 10% of (Basic + DA + Commission).
Head C: 50% (metro) or 40% (non‑metro) of (Basic + DA Commission).

Step 3: Exemption = Minimum of A, B, C

The least among these three is the amount that is exempt from tax. The remainder of HRA (if any) is taxable and should be included in your taxable salary.

Example

Suppose Mr X lives in Mumbai (metro), has Basic + DA of ₹ 3,00,000 per year, pays rent ₹ 1,80,000 per year, receives HRA ₹ 1,20,000 per year.

Head A = ₹ 1,20,000
Head B = ₹ 1,80,000 – 10% of ₹ 3,00,000 = ₹ 1,80,000 – ₹ 30,000 = ₹ 1,50,000
Head C = 50% of ₹ 3,00,000 = ₹ 1,50,000
Least = ₹ 1,20,000 → HRA exempt = ₹ 1,20,000.
(So full HRA is exempt in this case.)

Documents & Compliance

To claim HRA exemption you should maintain:

Rent receipts for the year.
Rent agreement (if applicable) between you and the landlord.
Bank or other proof of rent payment (especially if rent is high).
Landlord’s PAN if annual rent exceeds ₹ 1,00,000 (else, self‑declaration).
Proof of HRA component in salary (salary slip/Form 16).
These documents may be required by the employer or the Income Tax Department for verification.

Special Cases & Important Points

If you live with parents and pay them rent, you can still claim the HRA exemption provided they declare this rental income on their return, and you maintain evidence
If the employer does not provide HRA but you pay rent, you may claim a deduction under Section 80GG instead.
Under the new tax regime (optional), many exemptions, including HRA, may not be available — check the regime you opt for.
If you own a house in the city where you’re working and still paying rent, HRA may not be allowed for that location; check the details.

Claiming HRA using fake receipts or paying nominal rent to family members may lead to scrutiny or rejection of the claim.

Frequently Asked Questions (FAQs)

What happens if my rent is more than ₹ 1,00,000 in a year?

If you pay rent above ₹ 1,00,000 in a year, the landlord’s PAN must be provided else exemption may be disallowed.

Can I claim HRA if I live in my parent’s house and pay them rent?

Yes—you can claim HRA provided you pay rent, produce receipts and your parents declare the rental income in their tax return.

Is HRA exemption available under the new tax regime?

Generally no—If you opt for the new regime, most exemptions including HRA (under Section 10(13A)) are not available

What if I live in a non‑metro city?

The percentage used for calculation head C is 40% of (Basic + DA + Commission), instead of 50%.

Can self‑employed people claim HRA exemption?

Not under Section 10(13A). They may claim deduction under Section 80GG if they pay rent and meet conditions.

What is considered a metro city under HRA rules?

Major metros like Mumbai, Delhi, Kolkata and Chennai are treated as metro for the 50% rule (others at 40%).

How do I calculate actual rent less 10% of salary?

Take annual rent paid, subtract 10% of your (Basic + DA + Commission) for the year.

Does my salary slip need to show HRA component?

Yes—the HRA must be part of salary for you to claim the exemption under Section 10(13A).

What if I don’t have rent receipts or proof?

Without valid receipts or proof you risk the exemption being disallowed; maintain proper documentation.

Can I claim both home‑loan interest and HRA simultaneously?

Yes, but the houses involved and other eligibility must be checked for each claim. HRA eligibility requires you to live in rented house and meet conditions.

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What is House Rent Allowance, HRA Exemption, and Calculation

Introduction