HRA full form stands for House Rent Allowance is one of the major components of most salary packages. It is most important for calculations to ascertain how much of the HRA can be claimed to get deductions under Section 10(13A) of the Income Tax Act.
What is HRA – House Rent Allowance?
House Rent Allowance is a special allowance paid by the employers to the employees to cover the cost of rented house taken by them.
A person receiving HRA is considered a part of the salary but not fully taxable i.e., a portion of HRA is exempt u/s 10(13A) from income tax under the old tax regime.
Who can Claim HRA?
Any salaried person can claim HRA exemption under section 10(13A) of the Income Tax Act. But, the allowance is not available to:
Self-employed individuals but can claim tax deductions towards the rented housing under Section 80GG.
Any other assessee like HUF, Company Firm, and AOP/ BOI cannot claim HRA exemption.
How to Claim HRA Exemption?
The exemption is governed by Section 10(13A) of the Income Tax Act, which allows individual to claim a partial or full exemption, if he/she meet these conditions:
- Must be a salaried employee.
- Live in a rented house.
- HRA received must be included in (CTC).
- Need to submit correct rent receipts and proof of rent payment.
The HRA exemption calculation will depend on various factors like rent paid, salary, HRA received by the employee and city of residence of employee.
However, if an individual own the property you reside in, the entire HRA amount is taxable. It’s important to note that if you opt for the new tax regime, you cannot claim any HRA exemption.
How to Calculate HRA Exemption?
As per Rule 2A the lowest of the following amounts can be claimed by an individual as HRA exemption u/s 10(13A):
- Actual HRA received
- Metro Cities (if residence is in Delhi, Mumbai, Kolkata, Chennai): 50% of [Basic Salary + Dearness Allowance + Commission]
- Non-Metro Cities: 40% of [Basic Salary + Dearness Allowance + Commission]
- Actual rent paid minus 10% of [Basic Salary + Dearness Allowance + Commission]
Example of HRA Calculation
Mr. Abhiraj is a salaried person lives in Chennai. He pays a monthly rent of Rs.12,000 i.e., Rs.1,44,000 per annum. His monthly earnings details are as follows:
| Basic Salary | Rs.35,000 |
| HRA | Rs.13,000 |
| Dearness Allowance | Rs.2,000 |
| Leave Travel Allowance (LTA) | Rs.5,000 |
HRA Exemption Calculation
| HRA Received | (13000 @ 12) = Rs.1,56,000 |
| 50% of Basic Salary & DA (since Chennai is a metro city) | (37000 @ 12)*50% = Rs.2,22,000 |
| Rent Paid – 10% of Basic Salary & DA | (Rs.12,000 @ 12) – (10% @ Rs.37,000 @ 12) = Rs.1,44,000 – Rs.44,400 = Rs.99600 |
Therefore, Mr. Abhiraj can claim an HRA exemption of Rs.99,600 as this is the lowest of these three amount.
Tax Implications
- If Mr. Abhiraj opt for the Old Tax Regime, the remaining HRA amount after exemption (1,56,000 – 99,600) = Rs.56,400 will be subject to tax at applicable slab rates.
- If he chooses the New Tax Regime u/s 115BAC, the entire HRA of Rs. 1,56,000 will be taxable.
Documents Required for HRA Deduction
Salaried taxpayers choosing the old tax regime for AY 2025-26, are now required to provide place of work, actual rent paid, actual HRA received, and salary breakup (basic salary, dearness allowance and commission), along with an indication of metro/non-metro city for more detailed reporting of deductions. The documents required are:
- PAN card details of landlord – if the rent exceeds Rs.1 Lakh per annum.
- Rent Receipts
- Rental Agreement
- Form 12BB
- Bank payment proof for rent
- Salary slip where HRA is incorporated
Note:
As per circular No. 8/2013 dated 10 October 2013, landlords without having a PAN Card must sign a self declaration stating he doesn’t have a PAN.
FAQs
Yes, you can claim both HRA exemption and home loan interest deduction.
Yes, but you need to justify the claim with valid reasons e.g., the office location being far from your owned house. This is subject to fulfilling applicable conditions.
You can pay rent to your parents and claim the allowance, provided you enter into a rental agreement and transfer money to them monthly. Your parents must report this rent as income in their income tax return.
Yes, you can claim HRA without the landlord’s PAN if the annual rent is less than Rs. 1 lakh. However, PAN is mandatory if the annual rent exceeds Rs. 1 lakh.
An HRA certificate is issued to government employees claiming HRA because they cannot avail of government accommodation as per policy.
For the purpose of Form 16, rent receipts and a rent agreement are required for the employer to allow the deduction before the end of the financial year.
If you cannot provide the landlord’s PAN or a declaration that they don’t have one, your employer will not provide the HRA exemption. You can claim the excess tax deducted directly while filing your tax returns for the year.
