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.
Paying rent to a family member — is it allowed?
Yes, you can claim HRA exemption while paying rent to a parent, provided the arrangement is genuine: you need an actual rent agreement, monthly rent payments through a traceable method (bank transfer, not cash), and rent receipts. Your parent must also declare this rent as income in their own tax return, since the IT department treats this as a genuine landlord-tenant transaction, not a bookkeeping formality. You cannot claim HRA for rent paid to a spouse, since the tax department views a spousal arrangement as inherently non-arm's-length.
What happens if you don't submit rent receipts on time
Employers typically require rent receipts and the landlord's PAN (if applicable) by January or February to factor HRA exemption into your Form 16 and monthly TDS. If you miss this deadline, your employer will deduct higher TDS through the rest of the year, but you can still claim the HRA exemption directly while filing your Income Tax Return (ITR) — the exemption isn't lost, you simply get the benefit as a refund instead of through reduced monthly TDS.
Self-employed and freelancers — no HRA, but not without options
HRA exemption under Section 10(13A) is only available to salaried employees who actually receive an HRA component from an employer. Self-employed individuals and freelancers can't claim HRA, but they can claim rent paid under Section 80GG instead, subject to different (generally lower) limits — the lower of ₹5,000/month, 25% of total income, or rent paid minus 10% of income — and only if neither they nor their spouse own a house in the city where they work.