If you’re a salaried employee living in a rented home, the House Rent Allowance (HRA) you receive might offer a valuable tax-saving opportunity—but only under the old tax regime. Here’s a breakdown of how HRA exemptions work, who can claim them, and what changes apply under the new tax rules from FY 2024-25.
What Is HRA and How Is It Taxed?
HRA is a component of your salary meant to help cover rent expenses. Under Section 10(13A) of the Income Tax Act, 1961, a portion of the HRA received can be exempt from tax, provided you meet specific conditions:
- You are salaried
- You live in rented accommodation
- You opt for the old tax regime
If you own your home or don’t pay rent, the entire HRA is taxable.
What’s New in the Tax Regime?
From April 1, 2023, the government introduced the new tax regime with reduced slabs, a higher basic exemption of ₹3 lakh, and a standard deduction on salary and pension. But here’s the catch: HRA exemption is not allowed under this new regime.
So, if you’re planning to claim HRA tax benefits, you’ll have to opt out of the new regime and stick with the old one.
How Much HRA Is Exempt?
The exempt portion of your HRA is calculated as the lowest of the following:
- Actual HRA received
- 50% of salary (for metro cities like Delhi, Mumbai, Chennai, Kolkata) or 40% for non-metros
- Rent paid – 10% of salary
Salary here includes basic salary + DA (if part of retirement benefits) + commission (if based on turnover).
Example
Suppose you earn ₹20,000/month in a metro city, get ₹8,000/month as HRA, and pay ₹10,000/month as rent.
- Actual HRA received = ₹96,000
- 50% of salary = ₹1,20,000
- Rent paid minus 10% of salary = ₹96,000
Exempt HRA = ₹96,000 (lowest of the three)
Documents Required to Claim HRA Exemption
To claim this exemption, you need to:
- Provide rent receipts
- Submit rental agreement
- Furnish landlord’s PAN if annual rent exceeds ₹1 lakh
If monthly rent exceeds ₹50,000, the tenant must deduct 5% TDS under Section 194-IB and deposit it using Form 26QC. A Form 16C TDS certificate must be shared with the landlord.
Special Scenarios
1. Paying Rent to Parents or Spouse
You can claim HRA if you pay rent to parents, but they must declare it as income from house property. You’ll need a rental agreement, rent receipts, and ideally bank transfers to prove genuineness.
Claiming HRA for rent paid to your spouse is not advisable and likely to be rejected unless you provide ironclad proof.
2. Owning a House but Renting in Another City
You can claim HRA for the rented house and also claim home loan tax benefits on your owned property if it’s in a different city.
No HRA? You May Still Claim Rent Deduction Under Section 80GG
If you don’t receive HRA or are self-employed, Section 80GG provides limited relief. You must:
- Live on rent
- Not own any residential property (in your or your spouse/minor child’s name)
- Submit Form 10B for the claim
The deduction is the lowest of:
- Rent paid – 10% of total income
- 25% of total income
- ₹5,000/month (₹60,000 annually)
Note: This benefit is only available under the old regime.
Summary
| Eligibility | HRA Exemption (Section 10(13A)) | Rent Deduction (Section 80GG) |
| Salaried & pays rent | Yes (only in old regime) | No |
| Self-employed or no HRA | No | Yes |
| Owns house in another city | Yes, if renting elsewhere | No |
Pro Tips
- Stick to the old tax regime if you’re paying rent and want to save through HRA.
- Keep all documents and payment records.
- Prefer bank transfers over cash to avoid disputes during tax scrutiny.
- Submit your landlord’s PAN if needed.
By choosing the right regime and maintaining proper documentation, you can legally reduce your tax burden while living in rented accommodation.
