If you’re a salaried employee living in rented accommodation, you may be eligible for a substantial tax benefit through the House Rent Allowance (HRA) exemption under the Income Tax Act. Understanding how to correctly claim this exemption can significantly reduce your taxable income.
In this comprehensive guide, explaination given about what HRA is, how it is calculated, what percentage is applicable in different cities, and how you can claim the HRA exemption under Section 10(13A). This article also includes tips, documentation requirements, and common mistakes to avoid.
✅ What is House Rent Allowance (HRA)?
House Rent Allowance (HRA) is a salary component provided by employers to help employees meet rental housing costs. Under Section 10(13A) of the Income Tax Act, HRA can be partially or fully tax-exempt, subject to specific conditions.
HRA is mentioned in your salary breakup and is taxable only to the extent it is not exempt under the law.
👤 Who is Eligible to Claim HRA Exemption?
You can claim HRA exemption if all the following conditions are met:
- You are a salaried employee receiving HRA.
- You live in a rented house and pay rent.
- You do not live in your own house or your spouse’s house.
🏙️ Metro vs Non-Metro City HRA Exemption Rates
HRA exemption percentages depend on the city of your residence:
| City Type | HRA Exemption % | Cities Included |
|---|---|---|
| Metro Cities | 50% of salary | Delhi, Mumbai, Kolkata, Chennai |
| Non-Metro Cities | 40% of salary | All other cities in India |
📊 How is HRA Exemption Calculated?
As per Rule 2A of the Income Tax Rules, your HRA exemption is the least of the following:
- Actual HRA received from your employer
- Rent paid minus 10% of salary (Basic + Dearness Allowance)
- 50% of salary (for metro cities) or 40% (for non-metro cities)
Salary includes only Basic + Dearness Allowance (DA) (if DA is part of retirement benefits).
🧮 Example of HRA Calculation
Assumptions:
- Basic Salary: ₹50,000/month
- HRA Received: ₹20,000/month
- Rent Paid: ₹18,000/month
- City: Mumbai (Metro)
Step-by-step calculation:
- Actual HRA received = ₹20,000
- Rent paid – 10% of salary = ₹18,000 – ₹5,000 = ₹13,000
- 50% of salary (metro) = ₹25,000
Exempt HRA = Least of ₹20,000, ₹13,000, ₹25,000 = ₹13,000/month
Taxable HRA = ₹7,000/month
📜 HRA Exemption Under Section 10(13A)
- Applies only to salaried individuals receiving HRA.
- You can claim HRA even if you own a house, provided you’re living in rented accommodation for valid reasons (e.g., work location).
📂 Documents Required to Claim HRA
To claim HRA through your employer or in your ITR:
- Rent receipts
- PAN of landlord (if annual rent > ₹1,00,000)
- Rent agreement (optional but recommended)
- Self-declaration, if requested by employer
🔁 If you don’t receive HRA, claim deduction under Section 80GG (conditions apply).
🆚 HRA vs Section 80GG: Know the Difference
| Criteria | Section 10(13A) (HRA) | Section 80GG |
|---|---|---|
| Who can claim? | Salaried with HRA in salary | Salaried/self-employed without HRA |
| Max Deduction | Based on salary and rent | ₹5,000/month or ₹60,000/year |
| Form Required | No special form | Form 10BA required |
📝 Key Points to Remember
- Keep proof of rent (receipts, agreement).
- Landlord’s PAN is mandatory if rent > ₹1 lakh/year.
- Do not pay rent to spouse to claim HRA—it’s usually disallowed.
- HRA and home loan benefits can be claimed together for different properties.
- HRA is not fully exempt—calculate exemption as per rules.
🚫 Common Mistakes to Avoid
- ❌ Claiming HRA without actually paying rent
- ❌ Hiding landlord’s PAN when required
- ❌ Assuming full HRA is tax-free
- ❌ Claiming HRA while living in a self-owned or spouse-owned house
💻 How to Claim HRA in Income Tax Return (ITR)?
- If HRA is shown in Form 16, no action required during ITR filing.
- If not, manually calculate exemption and claim it under “Income from Salary”.
- Keep all supporting documents in case of scrutiny by the IT Department.
🙋 FAQs on HRA Exemption
Q1. Can I claim HRA if I live with my parents?
Yes. You can pay rent to your parents and claim HRA, provided it’s a genuine transaction. Rent must be declared as income by your parents.
Q2. Can I claim HRA and home loan tax benefits simultaneously?
Yes, if your owned house is in another city or far from your workplace, both claims are allowed.
Q3. Is a rent agreement mandatory?
Not mandatory, but highly recommended—especially for higher rent amounts. It strengthens your claim.
📌 Final Thoughts
House Rent Allowance can offer a significant tax benefit to salaried individuals who live on rent. To make the most of this exemption:
- Know your eligibility
- Maintain proper documentation
- Avoid common errors
- Consult a tax expert for complex cases
A properly claimed HRA exemption under Section 10(13A) can help you optimize your taxes effectively in 2025.
