House Rent Allowance (HRA) is one of the largest tax exemptions available to salaried individuals. If you're renting a home and receiving HRA from your employer, you can potentially exempt a significant portion of it from income tax.
This guide explains the HRA exemption rules, the calculation formula, and exactly how to claim it.
New Tax Regime Alert: HRA exemption is not available under the new tax regime. This guide applies only to taxpayers in the old tax regime.
What is HRA?#
HRA (House Rent Allowance) is a component of your salary specifically meant to help you pay rent. The Income Tax Act allows a portion of HRA to be exempt from tax under Section 10(13A).
The exempt amount depends on three factors:
- The actual HRA received from your employer
- The rent you actually pay
- Whether you live in a metro or non-metro city
Step 1: Determine What Qualifies as "Salary" for HRA Calculation#
For HRA exemption, "salary" means:
- Basic salary + Dearness Allowance (DA, if it forms part of retirement benefit) + Commission (as a fixed % of turnover)
NOT included in "salary" for HRA:
- HRA itself
- Special allowances
- House rent allowance
- Bonus, incentives
- Any other allowance
Step 2: Calculate Your HRA Exemption#
The exempt HRA is the minimum of these three amounts:
Formula#
- Actual HRA received from employer
- 50% of salary (if living in Delhi, Mumbai, Kolkata, or Chennai) OR 40% of salary (all other cities)
- Actual rent paid minus 10% of salary
Example — Metro City (Mumbai)#
| Item | Amount |
|---|---|
| Basic salary | ₹60,000/month |
| DA (part of retirement) | ₹10,000/month |
| Total salary for HRA | ₹70,000/month |
| HRA received | ₹30,000/month |
| Rent paid | ₹25,000/month |
Now calculate the three figures:
- Actual HRA = ₹30,000/month
- 50% of ₹70,000 (metro) = ₹35,000/month
- Rent − 10% salary = ₹25,000 − ₹7,000 = ₹18,000/month
HRA exempt = Minimum (₹30,000, ₹35,000, ₹18,000) = ₹18,000/month = ₹2,16,000/year
HRA taxable = ₹30,000 − ₹18,000 = ₹12,000/month (included in income)
Calculate your exact HRA exemption →
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Example — Non-Metro City (Pune)#
| Item | Amount |
|---|---|
| Basic salary | ₹80,000/month |
| HRA received | ₹25,000/month |
| Rent paid | ₹20,000/month |
Three figures:
- Actual HRA = ₹25,000
- 40% of ₹80,000 (non-metro) = ₹32,000
- ₹20,000 − ₹8,000 = ₹12,000
HRA exempt = Minimum (₹25,000, ₹32,000, ₹12,000) = ₹12,000/month = ₹1,44,000/year
Step 3: Know the Rules and Conditions#
Conditions for Claiming HRA#
- You must be salaried — not applicable for self-employed (they claim u/s 80GG)
- You must be paying actual rent — you cannot claim HRA exemption while living in your own house or parents' house without paying rent
- The rented property must not be owned by you — HRA exemption is not available if you own the property you're claiming rent for
- You must have HRA as a component in your salary structure
Metro vs Non-Metro Cities#
The 50% limit applies only to these four metro cities:
- Delhi (and NCR areas considered?)
- Mumbai (including Thane, Navi Mumbai — as per the Act, only Mumbai itself)
- Kolkata
- Chennai
All other cities (Bengaluru, Hyderabad, Pune, Ahmedabad, etc.) get the 40% limit.
Common Mistake: Bengaluru, Hyderabad, and Pune are NOT classified as metro cities for HRA purposes under the Income Tax Act. Use 40% for these cities, not 50%.
Landlord PAN Requirement#
If your annual rent exceeds ₹1,00,000 per year (₹8,333/month), you must obtain the landlord's PAN and submit it to your employer.
What if the landlord doesn't have a PAN? You can submit a declaration from the landlord confirming PAN is not allotted. Without PAN or this declaration, your employer cannot consider HRA exemption.
Step 4: Claim HRA in Your ITR#
If You Submitted Proof to Employer#
If you gave rent receipts and landlord PAN to your employer by February, the HRA exemption is already reflected in your Form 16. No additional action needed in ITR — verify the numbers match.
If You Forgot to Submit to Employer (or Started Paying Rent Mid-Year)#
You can still claim HRA exemption directly in your ITR even if employer deducted TDS without considering HRA.
In ITR-1:
- Go to Salary Income section
- Under "Allowances Exempt u/s 10," click Add
- Select House Rent Allowance (HRA)
- Enter the exempt amount calculated using the formula
- The system reduces your taxable salary accordingly
- Any excess TDS deducted comes back as a refund
Supporting documents to keep (not to upload, but for records):
- Rent receipts (month-wise)
- Rent agreement / lease deed
- Landlord's PAN card copy
- Bank transfer proof (if rent paid digitally)
Pro tip: Always pay rent via bank transfer or UPI. Cash payments are hard to prove if the IT department asks for evidence.
Special Situations#
Paying Rent to Parents#
You can pay rent to your parents and claim HRA exemption, provided:
- The payment is genuine (not just on paper)
- A rent agreement exists
- Your parents receive the rental income and declare it in their own ITR
- Your parents actually own the property
The department scrutinizes family rent arrangements, so maintain proper documentation.
Living in Your Own House#
No HRA exemption if you live in your own house. However, if you're paying EMIs on a home loan for a different city while renting in your work city, you can claim:
- HRA exemption for the city you're renting in
- Home loan interest deduction under Section 24(b) for the property you own
Two Residences in the Same City#
Generally not allowed. The HRA exemption assumes you're renting due to work necessity. If both the owned and rented house are in the same city, the department may disallow HRA.
HRA Without HRA Component in Salary#
If your salary structure doesn't include HRA as a separate component, you cannot claim Section 10(13A) exemption. Instead, you may claim Section 80GG (up to ₹60,000 per year, subject to conditions).
Frequently Asked Questions#
Can I claim both HRA and home loan deduction? Yes, if you're renting in one city and have a home loan for a property in another city (or an under-construction property). Both deductions are allowed simultaneously.
My employer doesn't accept rent receipts — what do I do? Claim HRA exemption directly in your ITR. The refund for excess TDS will be credited to your bank account.
What's the documentation I need to keep for 6 years? Rent receipts (monthly), rent agreement, landlord PAN declaration, bank payment proofs for rent. The IT department can query up to 6 AYs back.
Is the HRA exemption available if I work from home? The legal requirement is that you must actually reside in the rented property. Working from a rented home qualifies — the work location itself is not what determines eligibility.