Key points
- Exempt HRA is the least of: HRA received, rent minus 10% of salary, and 50% (metro) or 40% of salary.
- “Salary” here means basic plus dearness allowance that counts for retirement benefits.
- HRA exemption is available only in the old tax regime.
- Without HRA in your salary, Section 80GG gives a smaller rent deduction.
The three limits
Under Section 10(13A), the exempt part of HRA is the lowest of:
- The HRA actually received from your employer.
- Rent actually paid minus 10% of salary.
- 50% of salary if you live in Delhi, Mumbai, Kolkata or Chennai; 40% elsewhere.
The rest of your HRA is taxable. Salary means basic pay plus DA (where it counts for retirement benefits), for the months you lived in rented accommodation. Rules for which cities count as metros can change; check the current list when you file.
Examples
| Example 1 (Mumbai) | Example 2 (Pune) | |
|---|---|---|
| Basic salary (yearly) | ₹6,00,000 | ₹6,00,000 |
| HRA received | ₹2,40,000 | ₹3,00,000 |
| Rent paid | ₹3,00,000 | ₹2,40,000 |
| Limit 1: HRA received | ₹2,40,000 | ₹3,00,000 |
| Limit 2: rent − 10% of basic | ₹2,40,000 | ₹1,80,000 |
| Limit 3: 50% / 40% of basic | ₹3,00,000 | ₹2,40,000 |
| Exempt HRA (least) | ₹2,40,000 | ₹1,80,000 |
| Taxable HRA | ₹0 | ₹1,20,000 |
Documents and rules to follow
- Keep rent receipts and a rental agreement. Your employer may ask for them before reducing TDS.
- If yearly rent exceeds ₹1 lakh, give your employer the landlord’s PAN.
- You can pay rent to your parents if they own the house and you genuinely pay them; they must show it as income. Rent paid to a spouse is generally not accepted.
- You cannot claim HRA for a house you own and live in. You can claim both HRA and home loan interest if you rent where you work and own a house elsewhere.
No HRA in your salary? Section 80GG
Self-employed people and employees without HRA can deduct rent under Section 80GG (old regime only) — the least of ₹5,000 a month, 25% of total income, or rent minus 10% of total income. You, your spouse or minor child must not own a house in the city where you live, and you file Form 10BA.
When your rent or salary changes mid-year
HRA exemption is worked out for each period separately. If you moved house, changed cities, received a raise or only started renting part-way through the year, calculate the three limits for each period with that period’s salary, HRA and rent, and add the exempt amounts together. Months when you did not pay rent earn no exemption.
If your employer did not account for HRA
If you missed the deadline to submit rent receipts, your employer will have deducted more TDS. You can still claim the HRA exemption when filing your return under the old regime, as long as you have the evidence, and receive the excess tax as a refund.
Frequently asked questions
Can I claim HRA if I live with my parents?
Yes, if you genuinely pay rent to a parent who owns the house, with a rental agreement and bank transfers as proof. Your parent must show the rent as income.
Is HRA fully taxable in the new regime?
Yes. Under the new regime, the entire HRA received is taxable as part of your salary.
Do I need rent receipts for small amounts?
Employers usually accept declarations without receipts up to about ₹3,000 a month, but keep receipts and proof of payment anyway, in case the tax department asks.