What is House Rent Allowance (HRA)?
House Rent Allowance (HRA) is a salary component paid by employers to compensate employees for rental accommodation expenses. Under Section 10(13A) of the Income Tax Act, a portion of HRA can be claimed as tax-exempt if you live in a rented house and opt for the Old Tax Regime.
The exemption is calculated using a three-condition formula where the lowest value becomes your tax-free HRA. This calculator helps you determine exact exempt and taxable HRA amounts based on your salary, rent paid, and city classification.
How is HRA Exemption Calculated?
HRA exemption is calculated as the minimum (lowest) of these three values:
- Actual HRA Received: The HRA component shown in your salary slip (monthly HRA × 12 for annual calculation)
- Rent Paid minus 10% of Salary: Total annual rent paid minus 10% of (Basic Salary + Dearness Allowance). This ensures only "excess rent" beyond basic living costs gets exemption
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50% or 40% of Salary:
- Metro Cities (50%): Delhi, Mumbai, Kolkata, Chennai only
- Non-Metro Cities (40%): All other cities (Bangalore, Hyderabad, Pune, etc.)
Key Formula: Salary for HRA = Basic Salary + Dearness Allowance (DA). Other allowances like Special Allowance, Conveyance, Medical are NOT included.
Documents Required to Claim HRA
Mandatory Documents:
- Rent Receipts: Monthly or quarterly receipts with landlord signature, property address, and revenue stamp (₹1 for payments > ₹5,000 cash)
- Rent Agreement: Registered or notarized rental agreement showing rent amount, tenure, and landlord details
- Landlord PAN: Mandatory if annual rent exceeds ₹1,00,000. Submit to employer for TDS compliance
- Rent Payment Proof: Bank statements, cheque copies, or UPI transaction records showing rent payments
- No-PAN Declaration: If landlord refuses PAN, submit declaration with landlord name and address
Rent Receipt Format:
Can I Claim Both HRA and Home Loan Deduction?
Yes! You can claim both simultaneously
- HRA Exemption: For rented accommodation where you currently live (Section 10(13A))
- Home Loan Interest: For owned property (can be in different city or let-out) - Deduction up to ₹2 lakhs under Section 24(b)
- Home Loan Principal: Under Section 80C (up to ₹1.5 lakhs combined with other 80C investments)
- Condition: Both properties should be in different locations. You live in rented house in City A, own property in City B.
Common Mistakes to Avoid When Claiming HRA
- Claiming HRA in New Tax Regime: HRA is NOT allowed in New Regime. Must choose Old Regime.
- Wrong City Classification: Only Delhi/Mumbai/Kolkata/Chennai are Metro (50%). Bangalore is Non-Metro (40%).
- Including full CTC as Salary: Only Basic + DA counts for HRA calculation, not total CTC or gross salary.
- No Rent Receipts: Claiming HRA without proper documentation. Receipts are mandatory for IT verification.
- Missing Landlord PAN: PAN required if rent > ₹1L/year. Missing PAN can lead to claim rejection.
- Paying Rent in Cash: Large cash payments without receipts/stamp are rejected. Use bank transfer for audit trail.
- Same Address as Owned House: Cannot claim HRA if you live in your own house. Must be different location.
- Parents Not Showing Rental Income: If you pay rent to parents, they must declare it in ITR. Mismatch causes issues.
Special HRA Scenarios Explained
1. Paying Rent to Parents
Allowed: Yes, you can pay rent to parents and claim HRA. Requirements: Valid rent agreement, rent receipts, bank transfer proof. Parents must declare rental income in ITR under "Income from House Property". Tax department may scrutinize if parents don't show this income.
2. Paying Rent to Spouse
Allowed: Yes, but complex. Spouse must own the property and declare rental income. Subject to clubbing provisions under Income Tax Act. Consult CA for proper documentation. Generally not recommended for owned joint property.
3. Living in Owned House but Claiming HRA
Not Allowed: Cannot claim HRA if you live in your own house (or house owned by spouse in same city). Even if you receive HRA from employer, entire amount becomes taxable. Exception: Owned house in different city, living in rented accommodation in work city.
4. HRA Without Rent Receipts
Not Allowed: Rent receipts are mandatory to claim HRA exemption. Without proper documentation, entire HRA becomes taxable. Keep monthly/quarterly receipts with revenue stamp, landlord signature, and property address. For rent > ₹1L/year, landlord PAN is must.