Can Salaried Employees Claim HRA in the New Tax Regime (FY 2024-25)?
Rajesh Kumar Kar- Feb 24
- 10 min read
Updated: Apr 17
The introduction of the new tax regime has significantly altered how salaried employees manage their tax liabilities. One of the most impactful changes is the removal of common exemptions and deductions, including the widely used House Rent Allowance (HRA).
For employees living in rented accommodations, HRA used to be a powerful tax-saving tool under the old regime. But with the new regime offering lower slab rates in exchange for giving up such benefits, many are now uncertain about the treatment of HRA and how it affects their take-home pay.
Understanding the current position on HRA, its tax treatment across both regimes, and the practical implications for salaried individuals is crucial for making an informed choice.
Table of Contents
Can Salaried Employees Claim HRA in the New Tax Regime?
The short answer is: No. HRA exemption under Section 10(13A) is not allowed if you opt for the new tax regime.
Unlike the old regime, where salaried individuals could deduct a portion of their rent expenses through HRA exemption, the new regime has completely eliminated this benefit. As a result, if your salary includes an HRA component, it will now be fully taxable under the new regime.
What is House Rent Allowance (HRA)?
House Rent Allowance (HRA) is a salary component offered by employers to help employees meet rental expenses. Under the old tax regime, a portion of HRA could be claimed as tax-exempt, depending on several factors such as:
Basic salary amount
Rent paid
City of residence (50% of basic salary allowed for metro cities, 40% for non-metro)
This made HRA one of the most commonly used deductions among salaried individuals. However, with the new tax regime, HRA deduction is no longer available, forcing taxpayers to rethink their approach to tax savings.
HRA Taxation: Old vs. New Tax Regime
Under the Old Tax Regime
The exemption for HRA is calculated as the least of the following:
Actual HRA received from the employer
50% of basic salary (metro cities) or 40% (non-metros)
Rent paid minus 10% of basic salary
Example: HRA Calculation under the Old Tax Regime
Basic Salary: ₹50,000 per month
HRA Received: ₹20,000 per month
Rent Paid: ₹18,000 per month
Location: Mumbai (Metro city)
Exemption Calculation:
Actual HRA received = ₹20,000
50% of basic salary = ₹25,000
Rent paid – 10% of basic salary = ₹18,000 – ₹5,000 = ₹13,000
Exempt HRA = ₹13,000 (least of the above)Taxable HRA = ₹7,000
Under the New Tax Regime
The entire HRA received is taxable.
No exemption is available, even if you pay rent and meet the previous eligibility criteria.
This leads to a higher taxable income, especially for those who used to benefit significantly from HRA deduction.
Example on How to Calculate HRA Exemption
Understanding how HRA exemption is calculated under the old regime can help evaluate the tax impact of switching to the new regime. Here’s a practical example:
Scenario:
Basic Salary: ₹60,000 per month
HRA Received: ₹25,000 per month
Rent Paid: ₹30,000 per month
City: Mumbai (Metro)
Step 1: Identify the three limits
Actual HRA received: ₹25,000
50% of basic salary (since Mumbai is a metro): ₹30,000
Rent paid – 10% of basic salary: ₹30,000 – ₹6,000 = ₹24,000
Step 2: Take the least of the three values: HRA exemption = ₹24,000 per month (₹2,88,000 annually) Taxable HRA = ₹1,000 per month (₹12,000 annually)
In the new tax regime, this entire ₹3,00,000 (₹25,000 × 12) would be added to taxable income. Understanding this difference helps in choosing the right regime.
Why Was HRA Removed in the New Tax Regime?
The government introduced the new tax regime with the intent to simplify personal income tax. By offering reduced slab rates in exchange for giving up deductions and exemptions, the system aims to reduce paperwork, eliminate the need for proofs and rent receipts, and create a uniform tax process.
However, this trade-off has consequences. Salaried individuals who earlier benefited from exemptions like HRA, Section 80C deductions, and home loan interest now face higher taxable income under the new regime—particularly if they have high rent payments or investment-based deductions.
Tax-Saving Options Available Under the New Tax Regime
While traditional exemptions such as HRA and Section 80C are not available under the new system, certain built-in tax-saving features still apply:
Standard deduction of ₹75,000 (increased from ₹50,000 in Budget 2023).
Employer’s contribution to NPS under Section 80CCD(2) (not capped under new regime).
Tax-free perquisites like food coupons, travel reimbursements, and professional allowances.
Lower tax slabs, especially beneficial for individuals with fewer deductions.
These benefits reduce taxable income to some extent, though they do not fully compensate for the loss of HRA and other deductions for all taxpayers.
Old Tax Regime vs New Tax Regime: Which Should You Choose?
There is no one-size-fits-all answer. The better option depends entirely on your income structure and eligibility for deductions.
If your salary includes HRA, and you also claim benefits under Section 80C, Section 24(b) (home loan interest), and Section 80D (health insurance), the old regime is likely to offer more savings.
If your income structure includes fewer exemptions or if you prefer simplified compliance, the new regime may result in lower tax liability.
It’s important to compare the net taxable income under both regimes before making your choice.
Expert Opinions on Tax Planning Without HRA
With HRA exemption no longer available under the new tax regime, salaried individuals need to reassess how they manage their taxable income. While exemptions like HRA, 80C, and 24(b) are not applicable, several other strategies can still help reduce tax liability within the framework of the new regime.
Salary Restructuring
Adjusting salary components can make a significant difference:
Include tax-free allowances such as meal coupons, telephone reimbursements, and travel allowances.
Flexible benefit plans (FBPs) allow for personalized structuring of salary to include eligible reimbursements and minimize tax outgo.
Leave Travel Allowance (LTA), although not exempt under the new regime, can still be part of a structured package for those opting for the old regime.
Employer-Provided Benefits
Health insurance premiums paid by the employer for the employee or their family can provide indirect tax benefits and financial protection.
EPF (Employee Provident Fund) contributions continue to be a tax-efficient savings instrument. These are mandatory but also beneficial in the long term.
National Pension System (NPS)
Voluntary employee contributions to NPS Tier I accounts are eligible for an additional deduction of ₹50,000 under Section 80CCD(1B) (note: only in the old regime).
Employer’s contribution to NPS is deductible under Section 80CCD(2), with no upper limit under the new tax regime. This makes it one of the few remaining tax-saving salary components.
Other Long-Term Benefits
While 80C deductions don’t apply in the new regime, investments in PPF, SSY, or life insurance continue to provide financial security.
Gratuity and voluntary retirement benefits, although not deductions, can reduce future tax liabilities through structured payouts.
Tax-saving under the new regime is no longer about claiming exemptions. It now depends on optimizing salary structure, leveraging employer benefits, and planning long-term investments outside the deduction framework.
Salary Optimization Tips for the New Tax Regime
Even though HRA and most deductions are unavailable under the new tax regime, a few restructuring options can help optimize tax liability.
1. Use Flexible Benefit Plans (FBPs)
Employers may offer salary components that are partly or fully tax-free, including:
Meal coupons or food cards
Telephone/internet reimbursements
Uniform or equipment allowances
2. Leverage Employer Contributions
NPS Tier-I (Section 80CCD(2)): Employer contributions are still deductible in the new regime, with no upper monetary limit.
Health insurance: If provided by the employer, it adds value without increasing your taxable salary.
Gratuity and Leave Encashment: Exempt under certain limits, these can be structured as part of exit benefits.
3. Consider Employer-Provided Accommodation
When structured correctly, this is taxed at a reduced perquisite value. It can be more efficient than receiving HRA in a taxable form.
Misconceptions About HRA in the New Tax Regime
Many salaried individuals continue to hold incorrect assumptions about how HRA works under the new system. Here's a clarification of common myths:
Myth 1: “HRA can still be partially claimed in the new tax regime”
Fact: HRA is fully taxable under the new regime. Section 10(13A) exemptions apply only under the old regime.
Myth 2: “If I pay rent, I can still claim HRA”
Fact: Paying rent alone does not qualify you for HRA exemption if you opt for the new regime. All HRA received is included in taxable income.
Myth 3: “HRA and standard deduction can be claimed together in the new regime”
Fact: Only the standard deduction of ₹75,000 is allowed. HRA is not, even if you meet all conditions that were valid in the old regime.
Myth 4: “New regime is always better if tax rates are lower”
Fact: The new regime is not always more tax-efficient. It benefits those without major deductions. If your claimable exemptions exceed ₹2.5–3 lakh, the old regime may be more beneficial.
Conclusion
HRA exemption is not available under the new tax regime. For employees who used to rely on HRA to reduce tax, this change can significantly increase taxable income. However, the new regime compensates by offering simpler compliance and lower slab rates, which may still benefit those who do not have large deductions.
Evaluating total tax outgo under both regimes is the most reliable way to decide which one suits your financial situation. Personal income structures vary, and what works for one taxpayer may not work for another.
FAQs
Q1. Can I claim HRA under the new tax regime?
No. HRA exemption is not available in the new tax regime. The entire HRA component is added to your taxable income and taxed as per the applicable slab. In contrast, under the old regime, HRA could be partially or fully exempt depending on rent paid, salary, and city of residence.
Q2. Is there any way to reduce tax on rent payments under the new regime?
No direct deduction is available for rent under the new tax regime. However, employees can restructure their salary to include tax-efficient components like meal coupons, travel allowances, or opt for employer-provided accommodation, which is taxed at a lower perquisite value.
Q3. How does the removal of HRA affect salaried employees?
With HRA exemption removed, taxable income increases for those who previously claimed HRA deductions. Employees paying significant rent may face a higher tax liability under the new regime compared to the old one.
Q4. What is the main benefit of the new tax regime despite losing HRA?
The new regime offers reduced tax rates and simpler compliance. For those without major deductions such as HRA, 80C, or home loan interest, it may still result in lower overall tax liability.
Q5. Can salaried individuals switch between the old and new tax regimes each year?
Yes. Salaried employees can choose either regime every financial year while filing their ITR. However, individuals with business or professional income have limited flexibility once they opt for the new regime.
Q6. Are there any tax-saving benefits for tenants under the new regime?
Apart from the ₹75,000 standard deduction, no specific deduction is available for rent. However, employer-provided rent-free accommodation may offer relief since it is taxed at a concessional rate.
Q7. Is the government planning to bring back HRA exemption in the new regime?
As of now, there is no indication of HRA exemption being reintroduced under the new regime. The government continues to promote a simplified structure without exemptions.
Q8. How does the standard deduction compare with HRA exemption?
The standard deduction of ₹75,000 is uniform for all salaried individuals. HRA exemption, on the other hand, varies based on salary, rent, and city of residence. High-rent earners benefited more from HRA than they might with only the standard deduction.
Q9. What if I receive HRA but choose the new tax regime?
If you opt for the new tax regime, the full HRA received will be treated as taxable salary income. No exemption will be allowed, even if you meet the eligibility criteria that apply under the old regime.
Q10. Can I claim both HRA and home loan interest under the new tax regime?
No. Both HRA exemption and deductions for home loan interest under Section 24(b) are not permitted under the new tax regime.
Q11. How does the removal of HRA impact those living in metro cities?
Rent in metro cities tends to be higher. With the removal of HRA exemption, salaried individuals in metro areas may face a larger tax burden, making the old regime potentially more advantageous.
Q12. Can rent paid to parents be claimed under the new tax regime?
No. HRA cannot be claimed under the new tax regime, regardless of the landlord’s identity. Under the old regime, HRA could be claimed for rent paid to parents with proper documentation.
Q13. Is employer-provided accommodation tax-efficient under the new tax regime?
Yes. Such accommodation is treated as a perquisite and taxed at a concessional rate, which may result in lower tax liability compared to market rent.
Q14. Which tax regime is better for someone earning ₹10 lakh annually?
It depends on deductions. If you claim over ₹2 lakh in deductions (e.g., HRA, 80C, 80D, home loan), the old regime may provide greater savings. If deductions are minimal, the new regime’s lower slabs may be more beneficial.
Q15. Can LTA (Leave Travel Allowance) be claimed under the new regime?
No. LTA exemption is not allowed under the new tax regime. It remains available only under the old regime, subject to specific conditions.
Q16. What should I assess before choosing the new tax regime?
Consider your:
Annual income and salary components
Eligibility for deductions and exemptions under the old regime
Net tax liability under both regimes. Using an online tax calculator can help make an informed decision.
Q17. Is the new tax regime better for all salaried employees?
Not always. The new regime suits individuals with fewer exemptions. Those with substantial rent, insurance, or 80C deductions may benefit more under the old regime.
Q18. Are deductions under Section 80D allowed in the new regime?
No. Deductions for health insurance premiums under Section 80D are not permitted in the new tax regime.
Q19. Do PPF or EPF investments offer tax benefits under the new regime?
No. These investments do not offer deductions under the new tax regime. However, they remain valuable for long-term financial planning and retirement savings.
Q20. What if I mistakenly choose the wrong tax regime?
If you are salaried, you can correct it while filing your ITR. However, those with business income cannot switch back freely once the new regime is selected, unless conditions specified under the Income Tax Act are met.
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