What is HRA in Salary- Exemption, Tax Deduction, Claim Rules & Regulations
Tax calculation becomes complicated when salary structures involve multiple components. HRA is one such component that is often considered confusing for employees. What is HRA in salary, and who can claim HRA? Are you even eligible for HRA claims?
Let’s see!
HRA in Salary
HRA full form is House Rent Allowance.
House Rent Allowance is a part of a salaried person’s income that is provided by the employer to support the cost of rented accommodation. It also provides a major tax advantage under Section 10(13A) of the Income Tax Act for those who are eligible under the old tax regime.
Meaning of House Rent Allowance
The allowance exists to reduce the financial burden of rent and to ensure that employees who must move away from their home city for work are not penalised with higher tax liability. Employers include this allowance within the basic salary structure so that employees can claim a specific exemption.
Who Can Claim HRA
There is a clear difference in HRA claim rules depending on whether a person is salaried or self-employed.
1. Salaried Individuals
They can claim HRA under Section 10(13A) if all the following conditions are met:
- HRA must be a part of their salary or CTC structure.
- They must live in rented accommodation and pay the actual rent.
- They must not live in a house owned by themselves, their spouse, or a minor child in the same city.
- They must choose the Old Tax Regime, since the New Tax Regime does not allow HRA exemption.
- They must provide valid documentation such as rent receipts, a rental agreement, and proof of payment.
2. Self-Employed or Salaried Without HRA
They cannot claim exemption under Section 10(13A).
They can claim a deduction for rent paid under Section 80GG, subject to conditions.
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Key HRA Conditions You Must Meet
- You must be a salaried employee receiving HRA.
- You must live in rented accommodation and pay rent through verifiable methods such as bank transfer or cheque.
- You must provide rent receipts or a rental agreement as proof.
- If your annual rent exceeds one lakh rupees, your landlord’s Permanent Account Number must be submitted.
- If renting from parents, there must be a formal rent agreement and actual documented transfers, and your parents must declare this rent as income.
HRA Eligibility at a Glance
| Criteria Category | Requirement |
| Employment Status | Must be a salaried employee receiving HRA as part of salary or CTC. |
| Accommodation Type | Must live in a rented house or flat and pay actual rent. |
| Ownership Restriction | Cannot claim HRA if residing in property owned by self, spouse, or minor child in the same city. |
| Tax Regime | Exemption allowed only under Old Tax Regime; fully taxable in New Tax Regime. |
| Documentation | Rent receipts, rental agreement, proof of bank transfer. |
| Landlord Permanent Account Number | Mandatory if annual rent exceeds one lakh rupees; declaration required if Permanent Account Number unavailable. |
| Renting from Parents | Allowed with a valid agreement and documented payments; parents must declare rent as income. |
| Alternative for Self-Employed or Salaried Without HRA | Eligible only under Section 80GG, not Section 10(13A). |
Calculation Formula
HRA calculation is based on three values. The exempt portion will always be the lowest of the three.
- Actual HRA received from the employer.
- Rent paid minus ten per cent of salary.
- Fifty per cent of the salary for residents of metro cities or forty per cent for non-metro residents.
For this calculation, salary means basic pay plus dearness allowance plus commission, if it is a percentage of turnover.
HRA Exemption Section
House Rent Allowance exemption is available under Section 10(13A) of the Income Tax Act.
The HRA exemption formula is defined under Rule 2A.
How the HRA exemption limit is calculated
The exempt amount is the lowest of these three figures:
- The actual HRA received from the employer.
- The rent paid minus ten per cent of the salary (salary includes basic pay, dearness allowance, and relevant commission).
- Fifty per cent of the salary for those living in metro cities or forty per cent for those living in non-metro cities.
Whatever remains after this calculation is added to the employee’s taxable income.
HRA Exemption Limit for Metro and Non-Metro Cities
The exemption is calculated using different percentages depending on the city:
Metro cities
Delhi, Mumbai, Chennai and Kolkata
Exemption limit: Fifty per cent of salary
Non-metro cities
All other cities
Exemption limit: Forty per cent of salary
These limits influence the HRA calculation and determine how much tax can be saved.
How HRA Works in the New Tax Regime
Under the new tax regime, the exemption under Section 10(13A) is not available. The entire amount of House Rent Allowance becomes taxable, no matter how much rent is paid.
Those who want to claim HRA must opt for the old regime.
Example of HRA Calculation
Consider an employee living in Bengaluru, paying fifteen thousand rupees per month as rent. Their annual basic salary is three lakh sixty thousand rupees, and their dearness allowance amounts to twenty four thousand rupees, making the total salary considered for HRA calculation three lakh eighty four thousand rupees. They receive one lakh thirty thousand rupees as HRA during the financial year.
The three required calculations will be:
1. Actual HRA received: one lakh thirty thousand rupees.
2. Fifty per cent of salary (metro city): fifty per cent of three lakh eighty-four thousand rupees equals one lakh ninety-two thousand rupees.
3. Rent paid minus ten per cent of salary: annual rent of one lakh eighty thousand rupees minus ten per cent of three lakh eighty-four thousand rupees equals one lakh forty-one thousand six hundred rupees.
The exempt amount is the lowest of the three values, which is one lakh thirty thousand rupees.
The remaining portion, if any, becomes taxable according to the individual’s slab.
How to Claim HRA?
Here are the steps to claim House Rent Allowance correctly:
- Verify that HRA is included in your salary structure.
- Ensure you are living in a rented property and paying monthly rent.
- Collect and submit rent receipts to your employer.
- Keep a rent agreement as supporting documentation.
- Provide the landlord’s Permanent Account Number if the annual rent exceeds one lakh rupees.
- Declare HRA properly while submitting investment proofs or filing the income tax return.
What are the Documents Required to Claim HRA?
Every employee should maintain the following documents:
- Rent receipts for every month.
- Rental agreement.
- Payment proof such as bank transfers, digital payments or cheques.
- Form 12BB for declaring salary deductions.
- Salary slips showing HRA as part of the structure.
- Landlord’s Permanent Account Number if the rent exceeds one lakh rupees per year.
- A signed declaration from the landlord if they do not have a Permanent Account Number.
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These documents ensure that there is no issue during payroll verification or tax assessment.
Final Understanding
House Rent Allowance remains one of the simplest and most effective ways for salaried individuals to reduce tax liability under the old regime. With clear rules, defined exemption limits and straightforward documentation, HRA can significantly reduce taxable income for those living in rented accommodation.
Understanding HRA calculation, HRA exemption section rules, and the difference between old and new tax regimes ensures that individuals make informed decisions while filing taxes.
HRA in Salary- FAQs
It is calculated as the least of actual HRA received, rent paid minus 10 per cent of salary, or 40 per cent or 50 per cent of salary based on city category. Employers usually set HRA as 40 per cent or 50 per cent of basic salary within the CTC.
Only salaried individuals who live in rented accommodation, pay rent, and opt for the Old Tax Regime can claim an HRA exemption. Proper rent receipts and documentation are required.
HRA is not refundable because it is an allowance, not a tax refund or government scheme. Any non-exempt HRA is simply added to taxable income.
Not always, as employers may offer 40 percent or 50 percent of basic salary, depending on the city and company policy. The 40 percent or 50 percent figure is also used only for the exemption calculation.
Employers estimate annual taxable income after deductions and exemptions, apply slab-based tax, and divide the liability by twelve months. This monthly amount is deducted as TDS from the salary.
Yes, HRA is a separate allowance meant to cover rent, while basic salary is a fixed component of pay. Basic salary is fully taxable, whereas HRA may receive a partial tax exemption.
The monthly salary is usually a fixed amount regardless of the number of days in a month. Pro rata calculations for absences depend on an organisation’s payment policy.
Yes, you can claim HRA while filing your Income Tax Return if you missed submitting proof earlier. You must keep rent receipts and supporting documents ready.
