HRA Exemption: Claiming Your Rent on Tax

The formula

The exempt portion of your HRA under Section 10(13A) of the Income-tax Act is the lowest of three figures, computed for the period you actually paid rent:

One: the HRA your employer actually paid you.

Two: the rent you paid, minus ten percent of your salary.

Three: fifty percent of your salary if you live in Delhi, Mumbai, Kolkata or Chennai; forty percent if you live anywhere else.

"Salary" here means basic pay plus dearness allowance and any commission calculated as a fixed percentage of turnover — not your CTC and not your gross. Getting this wrong is the most common error in an HRA claim.

Note which cities count as metros for this purpose. It is the four listed above, on the basis of a definition that predates the growth of Bengaluru, Hyderabad and Pune — all of which attract the forty percent figure despite rents that behave like metro rents.

Old regime only

HRA exemption is not available under the new tax regime, which is now the default. If you are a renter in a city with serious rent, this single deduction is often what makes the old regime the cheaper of the two — run both before you choose, rather than accepting the default.

The comparison is worth doing properly each year, because the slabs and the standard deduction under the new regime have been revised repeatedly.

Documents and the PAN rule

Keep rent receipts, the rent agreement, and — most persuasive of all — the bank record of each payment. Paying rent by transfer rather than in cash converts your claim from an assertion into a record.

If your total rent for the year exceeds one lakh rupees, you must report your landlord's PAN to your employer. Without it the exemption is commonly denied at the payroll stage. If the landlord genuinely has no PAN, a signed declaration to that effect is the accepted substitute, though it invites scrutiny.

Rent paid to a parent is allowed, and is not by itself a device — the parent must actually own the property, and must declare the rent as income in their own return. Rent paid to a spouse has repeatedly been disallowed.

Where monthly rent to a resident landlord exceeds fifty thousand rupees, an individual tenant is required to deduct tax at source under Section 194-IB and deposit it. The rate has been revised in recent Finance Acts, so confirm the current one on the Income Tax Department site before you deduct.

If you pay rent but receive no HRA

Section 10(13A) applies only to an allowance your employer actually pays. A salaried person whose package contains no HRA component, and a self-employed person, both fall outside it.

The alternative is Section 80GG, which allows a deduction for rent paid where no HRA is received. It is considerably smaller — the least of five thousand rupees a month, twenty-five percent of total income, or rent paid minus ten percent of total income — and it is unavailable if you, your spouse or your minor child own residential property in the city where you work. It also requires Form 10BA to be filed. Like HRA, it belongs to the old regime.