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House Rent Allowance (HRA) is a common component of salary structure provided by employers to employees to meet the cost of rental accommodation. Under Section 10(13A) of the Income Tax Act, a portion of HRA received is exempt from tax, subject to certain conditions. This exemption is available only to salaried individuals who actually pay rent for their accommodation and opt for the old tax regime.
HRA exemption is one of the most significant tax-saving tools for salaried employees living in rented accommodation. It can substantially reduce your taxable income and help you save on income tax each financial year. The exemption amount is calculated as the minimum of three conditions prescribed under Rule 2A of the Income Tax Rules, ensuring a fair and standardized approach to determining the tax-free portion of your HRA.
The HRA exemption is the least (minimum) of the following three amounts calculated under Section 10(13A) read with Rule 2A:
The smallest of these three values is your HRA exemption — the tax-free portion. The remaining HRA (actual HRA received minus exemption) gets added to your taxable salary income.
Let's understand the HRA exemption calculation with a detailed example that covers all three conditions step by step:
In this example, Condition 3 (Rent Paid − 10% of Basic) gives the lowest value of ₹1,20,000. Therefore, the HRA exemption is ₹1,20,000 and the taxable HRA is ₹2,40,000 − ₹1,20,000 = ₹1,20,000. This taxable portion will be added to your income and taxed as per your applicable slab rates.
To claim HRA exemption, you must meet all of the following conditions:
To claim HRA exemption and be prepared for any income tax scrutiny, maintain these documents:
There are some special scenarios regarding HRA exemption that taxpayers should be aware of:
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Follow these 6 simple steps to calculate your HRA tax exemption accurately
Input your annual basic salary component (not gross salary). This is the basic pay plus dearness allowance (DA) if applicable. Check your salary slip or Form 16 for the exact figure.
Enter the total HRA you receive from your employer in a year. This is the actual HRA component credited to your salary. Do not confuse this with your total CTC or gross salary.
Enter the total rent you paid during the financial year. Include only the rent component — exclude maintenance charges, electricity, water, and other utility bills from this amount.
Choose Metro if you live in Delhi, Mumbai, Kolkata, or Chennai. Select Non-Metro for all other cities. This determines whether 50% or 40% of Basic+DA is used in the calculation.
Click the "Calculate HRA Exemption" button. The calculator instantly computes all three conditions and shows the minimum value as your tax-free HRA exemption amount.
Review the exemption amount, taxable HRA, and which condition limited your exemption. Print or share the results for your records, or use them while filing your income tax return.
These frequent errors can lead to rejected claims, penalties, or income tax notices
HRA exemption under Section 10(13A) is NOT available under the new tax regime. If you have opted for the new regime, the entire HRA is fully taxable. Always verify your regime choice before claiming HRA.
Paying rent to your spouse is highly scrutinized by the Income Tax Department. Since spouses are presumed to jointly own household assets, such arrangements are frequently disallowed. Ensure genuine documentation and that the spouse declares it as income.
If your annual rent exceeds ₹1,00,000, providing your landlord's PAN to your employer is mandatory. Failure to do so can result in your HRA claim being disallowed or higher TDS deduction. Collect PAN from your landlord well in advance.
A common error is using gross salary or CTC for HRA calculation. HRA exemption is calculated only on Basic Salary + Dearness Allowance (DA). Other components like HRA itself, special allowances, bonuses, and commissions (unless they form part of retirement benefits) are excluded.
Only the actual rent component is considered for HRA calculation. Society maintenance charges, electricity, water, gas, and other utility bills paid to the landlord or society are NOT part of rent paid. Including them inflates your claim incorrectly.
Many employees forget to collect rent receipts for every month. In case of a tax notice, you must produce receipts for the entire financial year. Maintain monthly receipts with landlord's signature, date, amount, and address. Digital payments should have corresponding receipts.
Stay updated with the current rules governing HRA exemption for the assessment year 2026-27
From FY 2020-21 onwards, HRA exemption under Section 10(13A) is completely removed under the new tax regime. As per the latest rules for FY 2025-26 (AY 2026-27), if you choose the new tax regime, the entire HRA received from your employer is added to your taxable salary. You must opt for the old tax regime to claim any HRA benefit.
Under Rule 26A of the Income Tax Rules, if the total rent paid by you in a financial year exceeds ₹1,00,000 (₹8,333 per month), you must provide your landlord's PAN to your employer. This is required for your employer to compute TDS correctly. If the landlord does not have a PAN, a declaration along with the landlord's Aadhaar number, Form 60, must be submitted.
Under Section 194-IB, if you pay rent exceeding ₹2,40,000 per year (₹50,000 per month for non-residential or ₹2,00,000 per month threshold for residential), your landlord or you (as tenant in certain cases) may be liable for TDS. For individual tenants paying rent for residential property exceeding ₹50,000 per month, TDS at 5% must be deducted under Section 194-IB.
Since Budget 2023, the new tax regime is the default regime. However, salaried employees who wish to claim HRA exemption must explicitly opt for the old tax regime. Your employer will ask you to choose the regime at the beginning of each financial year. If you do not choose, the new regime applies by default and your HRA becomes fully taxable.
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