What is House Rent Allowance (HRA)?#
House Rent Allowance (HRA) is a component of your salary paid by the employer to help cover rental expenses. Under Section 10(13A) of the Income Tax Act, HRA is partially or fully exempt from income tax — provided you actually live in rented accommodation.
Only available under the Old Tax Regime. HRA exemption is not available under the New Tax Regime.
HRA Exemption Formula#
The exempt HRA is the lowest of the following three:
| Condition | Amount |
|---|---|
| Actual HRA received | As per salary slip |
| Rent paid minus 10% of Basic Salary | (Annual Rent - 10% × Annual Basic) |
| 50% of Basic Salary (metro cities) | If you live in Delhi, Mumbai, Chennai, or Kolkata |
| 40% of Basic Salary (non-metro) | If you live elsewhere |
The lowest of these three is your exempt HRA. The rest is taxable.
Step-by-Step HRA Calculation#
Example:
- Basic Salary: ₹6,00,000/year (₹50,000/month)
- HRA received: ₹2,40,000/year (₹20,000/month)
- Rent paid: ₹18,000/month = ₹2,16,000/year
- City: Mumbai (metro)
Calculate the three components:
- Actual HRA received: ₹2,40,000
- Rent - 10% of Basic: ₹2,16,000 - ₹60,000 = ₹1,56,000
- 50% of Basic (metro): 50% × ₹6,00,000 = ₹3,00,000
Exempt HRA = Lowest = ₹1,56,000 Taxable HRA = ₹2,40,000 - ₹1,56,000 = ₹84,000
Documents Needed for HRA Exemption#
| Document | Required when |
|---|---|
| Rent receipts | Always required |
| Rent agreement | Strongly recommended |
| Landlord's PAN | If annual rent > ₹1,00,000 |
HRA Without HRA in Salary#
If you don't receive HRA as a salary component but pay rent, you can still claim a deduction under Section 80GG:
- Condition: Neither you, your spouse, nor minor children own any residential property in the city of employment
- Deduction: Lowest of (₹5,000/month, 25% of total income, rent - 10% of income)
Common Mistakes#
- Not disclosing rent payment in employer's tax computation — file a declaration early
- Paying rent to spouse or parents without actual payment — disallowed; must be genuine
- Forgetting landlord's PAN when rent > ₹1L/year — employer needs it for Form 16
- Claiming HRA and home loan interest on the same property — allowed only if you live elsewhere due to work