## What Is HRA Exemption?

**House Rent Allowance (HRA)** received from an employer is partly exempt under **Section 10(13A) of the Income Tax Act, 1961** read with **Rule 2A of the Income Tax Rules, 1962**.

> HRA exemption is available **only under the old tax regime**. Under the new regime (Section 115BAC), HRA is fully taxable.

## The Three-Way Test — Least of Three is Exempt

| Test | Amount |
|---|---|
| 1. Actual HRA received | Full amount from employer |
| 2. Rent paid minus 10% of salary | (Annual rent) – (10% × basic + DA) |
| 3. Metro/non-metro cap | 50% of salary (Delhi, Mumbai, Kolkata, Chennai) or 40% (all other cities) |

> **CBDT Circular No. 8/2013**: "Salary" means basic + DA only where DA forms part of retirement benefits. Do not include special allowances or HRA itself.

## Worked Example — Metro (Mumbai)

**Annual figures:** Basic + DA = ₹7,80,000; HRA received = ₹3,00,000; Rent paid = ₹2,64,000

Three tests: (1) ₹3,00,000 | (2) 2,64,000 – 78,000 = **₹1,86,000** | (3) 50% × 7,80,000 = ₹3,90,000

**Exempt HRA = ₹1,86,000 (least). Taxable HRA = ₹1,14,000.**

## Worked Example — Non-Metro (Pune)

**Annual figures:** Basic = ₹4,80,000; HRA received = ₹1,80,000; Rent paid = ₹1,68,000

Three tests: (1) ₹1,80,000 | (2) 1,68,000 – 48,000 = **₹1,20,000** | (3) 40% × 4,80,000 = ₹1,92,000

**Exempt HRA = ₹1,20,000. Taxable HRA = ₹60,000.**

## Key Rules

**Landlord's PAN (Rule 26C):** If annual rent exceeds ₹1,00,000, submit the landlord's PAN to your employer.

**Rent to spouse — not allowed:** CBDT position and tribunal rulings deny HRA exemption on rent paid to spouse.

**Rent to parents — permitted:** Paying rent to parents via bank transfer is a legitimate tax-saving strategy. Parents must declare the rental income in their own ITR.

**Own house in same city:** HRA exemption not available even if you choose to live elsewhere in the same city.

## Documents to Maintain
- Rent receipts (signed by landlord; revenue stamp if > ₹5,000/month)
- Registered or notarised rent agreement
- Landlord's PAN if annual rent > ₹1 lakh
- Bank statements showing rent payments

## HRA for Self-Employed

If you do not receive HRA from an employer, use **Section 80GG** (deduction up to ₹60,000 per year for rent paid where no HRA is received), subject to conditions.

Use the [HRA Exemption Calculator](/tools/hra-exemption-calculator) for instant computation.

## Frequently Asked Questions

### How is HRA exemption calculated under Section 10(13A)?

The exemption is the lowest of three amounts: (a) actual HRA received from the employer, (b) 50% of basic salary for metro cities (Delhi, Mumbai, Chennai, Kolkata) or 40% for non-metro cities, (c) actual rent paid minus 10% of basic salary. "Salary" for this calculation includes basic pay + dearness allowance (if part of retirement benefits) but excludes all other allowances.

### Can I claim HRA exemption if I live in my own house?

No. Section 10(13A) read with Rule 2A requires that rent must be actually paid for the accommodation occupied by the employee. If you own the house you live in, no HRA exemption is available. However, if you own a house in one city and rent in the city where you work, you can claim both HRA exemption (on the rented house) and home loan interest deduction under Section 24(b) (on the owned house).

### Is HRA exemption available under the new tax regime?

No. HRA exemption under Section 10(13A) is not available under the new regime (Section 115BAC). This is one of the most significant deductions lost when switching to the new regime, particularly for employees in metro cities paying high rent.

### Do I need rent receipts to claim HRA exemption?

Rent receipts are required if annual rent exceeds ₹1 lakh. Below this threshold, a declaration is generally sufficient. If rent exceeds ₹1 lakh per annum, you must also provide the landlord's PAN. Revenue stamps on rent receipts are not legally required but are a common practice. Digital payment records (bank transfers to landlord) serve as additional evidence.

### Can I claim both HRA and Section 80GG deduction?

No, these are mutually exclusive. Section 80GG applies only to individuals who do not receive HRA from their employer. If you receive HRA (even if you don't claim exemption), Section 80GG is not available. The 80GG deduction is the lowest of: ₹5,000/month, 25% of total income, or rent paid minus 10% of total income.

I'm CA Harun Raaj, Visakhapatnam. If any of this affects you or your business, reach out — I'd be glad to help.

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## See Also

- [Your RSUs Are Not Just Salary: The Two Separate Disclosures Required in AY 2026-27 ITR](https://www.harunraaj.com/blog/schedule-fa-rsu-foreign-assets-itr-2-ay-2026-27)
- [ESOP Tax Deferral for Startup Employees: The 48-Month Mechanism Most Tax Advisors Misexplain](https://www.harunraaj.com/blog/esop-tax-deferral-80-iac-startup-employees)
- [Section 80-IAC Tax Holiday: How Startups Actually Get the IMB Certificate](https://www.harunraaj.com/blog/section-80-iac-imb-certificate-startup-tax-holiday)

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