What is HRA (House Rent Allowance)?
House Rent Allowance (HRA) is a component of Indian salary paid to employees who live in rented accommodation. Under Section 10(13A) of the Income Tax Act, HRA is exempt from tax up to the minimum of three amounts: actual HRA received, rent paid minus 10% of basic salary, or 50%/40% of basic salary (metro/non-metro).
Detailed definition
HRA is one of the most generous Indian salary exemptions, designed in 1961 under Section 10(13A) of the Income Tax Act to help rented-accommodation employees offset housing costs. The companion Rule 2A of the Income Tax Rules specifies how the metro vs non-metro classification works and how the minimum-of-three formula is computed monthly. Most CTC structures include HRA as 40% to 50% of basic salary. Employees claim the exemption by submitting stamped rent receipts and (when annual rent exceeds INR 1 lakh) the landlord's PAN to their employer through the annual income-tax investment declaration cycle.
The exemption formula caps the benefit at the lowest of three computations, performed monthly. First, the actual HRA component of your salary. Second, the rent you paid minus 10% of basic salary for that month. Third, 50% of basic if you live in Delhi, Mumbai, Chennai, or Kolkata (metro), or 40% elsewhere. The lowest of the three becomes your exempt amount. Because the calculation is monthly, mid-year city changes, salary revisions, or rent changes shift the exempt figure each month, which is why payroll software re-runs the formula every cycle rather than only at year-end.
From AY 2020-21 onward, the New Tax Regime under Section 115BAC removed HRA exemption along with most other Section 10 and Chapter VI-A deductions. Employees choosing the New Regime get a lower flat tax schedule (5% from INR 3L to 7L, 10% to 10L, 15% to 12L, 20% to 15L, 30% above 15L for FY 2025-26) but lose HRA, 80C, 80D, and other Old Regime benefits. The Budget 2024 made the New Regime the default; employees who want HRA must explicitly opt for the Old Regime each year. The choice is now a live calculation every March based on your actual deductions versus the lower New Regime slab rates, and 3Tej's regime comparison calculator is built to make that switch decision concrete.
Formula
HRA Exemption = min(Actual HRA received, Rent paid - 10% of Basic, 50%/40% of Basic)
- Actual HRA received = The HRA component on your monthly payslip
- Rent - 10% Basic = Monthly rent paid minus 10% of your Basic salary
- 50%/40% Basic = 50% of Basic for metro cities, 40% for non-metro
Worked example
Suppose your monthly basic salary is INR 50,000, HRA is INR 25,000, and you pay INR 30,000 monthly rent in Mumbai (metro). You are on the Old Tax Regime.
- Actual HRA received per month: INR 25,000
- Rent paid minus 10% basic: INR 30,000 - INR 5,000 = INR 25,000
- 50% of basic (Mumbai is metro): INR 25,000
- Minimum of three (monthly HRA exempt): INR 25,000
- Annual HRA exemption: INR 25,000 x 12 = INR 3,00,000
Related terms
Related calculators on 3Tej
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Frequently asked questions
Is HRA available in the New Tax Regime?
No. From AY 2020-21 onward, the New Tax Regime under Section 115BAC removed HRA exemption along with 80C, 80D, LTA and most other Old Regime deductions. The Old Regime is the only way to claim HRA.
Can I claim HRA if I pay rent to my parents?
Yes, provided you actually pay rent through bank transfer, your parents declare the rent as their taxable income, and there is a formal rent agreement. The arrangement must be genuine, not artificial.
Do I need landlord PAN to claim HRA?
Yes if annual rent exceeds INR 1 lakh. Employers will not grant HRA exemption above this threshold without the landlord's PAN under CBDT rules from October 2013.
Can I claim HRA and home-loan interest together?
Yes, in the same financial year if both criteria are met - you rent in your work city and own a property elsewhere (or under construction). The two exemptions are independent under Section 10(13A) and Section 24(b).
What are the metro cities for HRA purposes?
Only Delhi, Mumbai, Chennai, and Kolkata qualify as 'metro' for HRA. Bangalore, Hyderabad, Pune, Ahmedabad and other tier-1 cities are treated as non-metro and qualify for 40% (not 50%) basic salary.
Is HRA fully exempt or partially?
HRA is partially exempt - only the minimum of the three formula amounts is exempt. The non-exempt portion of HRA is added to your taxable salary.
What happens to my HRA exemption if I move mid-year?
HRA exemption is computed month by month, not year-end. If you move from Mumbai (50% basic cap) to Pune (40% basic cap) in October, the first 6 months use the metro cap and the next 6 use the non-metro cap. Each month's exemption is the minimum of that month's three values; you sum the 12 monthly exempt amounts to get the annual figure.
What proof does the income tax department accept for HRA?
Stamped rent receipts (one per month or one per quarter), a formal rent agreement on stamp paper, bank statements showing rent transfer to the landlord, and the landlord's PAN if annual rent exceeds INR 1 lakh. Cash rent is allowed but scrutiny-prone; bank transfer is the safer paper trail when filing ITR or facing a notice under Section 143(2).