What is HRA?
House Rent Allowance is a component of your salary paid by your employer to help with rent. Under Section 10(13A), a portion of the HRA you receive is exempt from income tax.
The exemption is available only if you actually live in rented accommodation and pay rent. If you live in your own house, the entire HRA is taxable.
The HRA Exemption Formula
The exempt amount is the least of three values: actual HRA received, rent paid minus 10% of basic salary, and 50% of basic salary if you live in a metro city (40% for non-metros).
For example, with a basic salary of ₹40,000, HRA of ₹18,000, and rent of ₹15,000 in a metro: the three values are ₹18,000, ₹11,000 (15,000 − 4,000), and ₹20,000. The exemption is the least — ₹11,000.
Special Cases
If you pay rent to your parents, you can claim HRA exemption, but the rent must be genuine and your parents must declare it as income. You cannot pay rent to your spouse.
If your HRA is small or nil but you pay rent, you can claim a deduction under Section 80GG instead — up to ₹60,000 per year, subject to conditions.
Maximize Your Exemption
Keep rent receipts and your rent agreement ready — employers may ask for proof. If your rent exceeds ₹1 lakh per year, your landlord's PAN is required.
Use our HRA calculator to compute your exact exemption, and combine it with our Income Tax calculator to see how HRA reduces your total tax.