What is HRA?
House Rent Allowance is the part of your salary your employer pays towards the cost of rented accommodation. Under Section 10(13A) of the Income Tax Act, read with Rule 2A, a portion of this allowance is exempt from tax if you actually live in rented premises and pay rent. The exemption is one of the largest deductions available to salaried people under the old tax regime, and a common reason people choose it over the new regime.
How the exemption is calculated
The exempt amount is the least of three figures, all computed for the year:
- The actual HRA received from your employer.
- Rent paid minus 10% of salary, where salary means basic pay plus dearness allowance (if DA is part of retirement benefits) plus any commission paid as a fixed percentage of turnover.
- 50% of salary if you live in Delhi, Mumbai, Kolkata or Chennai, or 40% of salary in any other city.
Whatever HRA is not exempt is added to your taxable salary. Enter your monthly figures above and the calculator shows all three tests and marks which one applies.
Metro and non-metro cities
Only the four cities named in the rule count as metro. Bengaluru, Hyderabad, Pune, Ahmedabad, Gurugram and Noida are treated as non-metro and use the 40% limit, even though rents there may be higher. If you moved cities during the year, split the calculation by months in each city.
Documents you need
Keep rent receipts with a revenue stamp where required, and pay rent by bank transfer so there is a trail. If your total rent for the year exceeds ₹1 lakh, you must provide your landlord’s PAN to your employer; if the landlord has no PAN, a declaration in the prescribed form is needed. Rent paid to parents is allowed provided the money is actually paid and the parent declares it as income. Rent paid to a spouse is generally not accepted.
Example
Basic ₹50,000 a month, HRA ₹20,000, rent ₹25,000, living in Bengaluru. Annual salary for HRA purposes is ₹6 lakh. The three tests give: HRA received ₹2.4 lakh; rent minus 10% of salary is ₹3 lakh − ₹60,000 = ₹2.4 lakh; 40% of salary is ₹2.4 lakh. All three coincide, so the full ₹2.4 lakh is exempt and nothing is taxable. Move the same person to Mumbai and the third test rises to ₹3 lakh, but the exemption stays at ₹2.4 lakh because the other two limits bind first.
If you do not receive HRA
Self-employed people and salaried employees whose pay has no HRA component can instead claim a deduction under Section 80GG of up to ₹5,000 a month, subject to similar tests. HRA and 80GG cannot both be claimed. Home loan interest under Section 24 can be claimed alongside HRA if you own a house in another city and rent in the city where you work.
Frequently asked questions
Which cities count as metro for HRA?
Only Delhi, Mumbai, Kolkata and Chennai are metro cities for HRA. Bengaluru, Hyderabad, Pune and all other cities use the 40% limit.
Can I claim HRA under the new tax regime?
No. HRA exemption is available only under the old regime. Compare both regimes with the income tax calculator before deciding.
Do I need my landlord's PAN?
If annual rent exceeds ₹1 lakh you must give the landlord's PAN to your employer. Rent receipts or bank transfers are needed as proof; rent paid to parents is allowed if actually paid.