HRA (House Rent Allowance) is one of the most valuable tax-saving components for salaried employees in India — yet many people either overclaim it (risking IT notices) or underclaim it (leaving money on the table). Here is the complete guide.
The three-part test for HRA exemption
Under Section 10(13A), the HRA exemption is the minimum of three amounts:
- Actual HRA received from employer
- 50% of (Basic + DA) for metro cities, 40% for non-metro cities
- Rent paid minus 10% of (Basic + DA)
Metro cities for HRA purposes: Delhi, Mumbai, Kolkata, Chennai. All other cities (including Bangalore, Hyderabad, Pune) are non-metro for HRA calculation.
Worked example
Salaried employee in Bangalore: Basic = ₹60,000/month, HRA received = ₹24,000/month, Rent paid = ₹22,000/month.
Criterion 1: ₹24,000 (actual HRA)
Criterion 2: 40% of ₹60,000 = ₹24,000 (non-metro)
Criterion 3: ₹22,000 − 10% of ₹60,000 = ₹22,000 − ₹6,000 = ₹16,000
Exemption = minimum of (₹24,000, ₹24,000, ₹16,000) = ₹16,000/month = ₹1.92 lakh/year
PAN requirement for rent above ₹1 lakh
If your annual rent payment exceeds ₹1 lakh (₹8,333/month), you must provide your landlord's PAN to your employer to claim HRA. Without it, the IT department may disallow the claim during assessment. This is mandatory even if your landlord is a family member.
HRA and home loan together
You can claim both HRA exemption and home loan interest deduction under Section 24(b) simultaneously — but only if your rented house and owned house are in different cities. If you live in your own house, you cannot claim HRA regardless of whether you pay a mortgage.
Calculate your exact HRA exemption with our free HRA Calculator.