HRA Exemption AY 2025-26: Complete Guide to Calculation, Rules & Claiming

House Rent Allowance (HRA) exemption offers a great way for salaried individuals to save on taxes. This article provides a complete guide to HRA exemption for Assessment Year 2025-26. It covers the rules, calculation methods, and documentation needed. You will also learn how to claim HRA. This information is current with the latest income tax regulations.

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Table of Contents

• What HRA means.

• Who can claim HRA exemption.

• How to calculate your HRA exemption.

• What documents you need.

• The process for claiming HRA.

• Special situations related to HRA.

• Common mistakes to avoid.

Understanding HRA can help you make the most of this benefit when filing your income tax return.

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What is House Rent Allowance (HRA)?

House Rent Allowance (HRA) meaning is a payment employers give to employees to help with rent. The HRA in salary is for accommodation costs. Employers offer it to help employees manage the expense of rented housing. Section 10(13A) of the Income Tax Act covers HRA. This section outlines how HRA exemptions work.

The HRA allowance is a specific part of an employee's salary. Its main aim is to lessen the burden of rent for those not living in their own homes. So, if you get HRA and live in a rented place, a part of this allowance might not be taxed. This is a significant tax-saving opportunity for many salaried people in India. The rules for this exemption are provided in the Income Tax Act, 1961.

Who is Eligible to Claim HRA Exemption?

To claim HRA eligibility, specific conditions must be met by individuals. A person must be a salaried employee to qualify for HRA exemption. They also need to receive House Rent Allowance (HRA) as a part of their salary package. Living in a rented accommodation is another key requirement. The employee must be actually paying rent for this accommodation.

Individuals living in their own houses cannot claim HRA benefits. If you own the property you live in, any HRA received from your employer becomes fully taxable. It’s also important to know that HRA exemption is primarily available if you choose the Old Tax Regime for filing your taxes. The New Tax Regime generally does not allow for HRA exemption. You can explore the differences between the Old Tax Regime vs New Tax Regime to understand this better.

Here are the conditions for HRA exemption:

• You must be a salaried employee.

• HRA must be a component of your salary.

• You must live in a rented property.

• You must be making actual rent payments.

How to Calculate HRA Exemption (AY 2025-26)

To calculate HRA exemption for AY 2025-26, you need to understand the HRA calculation formula based on Section 10(13A) and Rule 2A of the Income Tax Rules. The HRA exemption rules state that the amount of exemption is the minimum of the following three amounts:

• Actual HRA received from the employer. This is the total amount of House Rent Allowance your employer paid you during the financial year.

• For those living in metro cities (Delhi, Mumbai, Kolkata, Chennai): 50% of 'salary'. For those in non-metro cities: 40% of 'salary'. Metro cities have a higher percentage due to typically higher rental costs.

• Actual rent paid annually minus 10% of 'salary'. This condition considers your actual rent outflow in relation to your salary.

The 'salary' for HRA calculation means: Basic Salary + Dearness Allowance (DA), if it forms part of retirement benefits + Commission received as a fixed percentage of turnover achieved by the employee. This definition is very important for accurate HRA calculation. It does not include all allowances or perquisites.

Let’s break down the components:

• Actual HRA received: The total HRA amount given by your employer.

• Percentage of salary based on city:
  

• Metro Cities: Delhi, Mumbai, Kolkata, Chennai.

• If you live in one of these cities, 50% of your 'salary' is considered.

• If you live in any other city (non-metro), 40% of your 'salary' is considered.

• Rent paid over 10% of salary: This compares your actual rent expenses to a portion of your salary.

The lowest of these three calculated amounts will be your HRA exemption. The remaining HRA, if any, will be taxable.

Understanding 'Salary' for HRA Calculation

A clear definition of salary for HRA is vital for correct HRA exemption calculation. The term 'salary' for House Rent Allowance (HRA) purposes specifically includes three components. First is the Basic Salary, which is your fixed pay. Second is Dearness Allowance (DA), but only if the terms of employment state that it forms part of retirement benefits. This is a key detail; not all DA is included. Third is Commission, provided it's a fixed percentage of the turnover achieved by the employee.

It's equally important to know what is not included in salary for HRA. Many other allowances, such as medical allowance, leave travel allowance (LTA), overtime pay, or other perquisites, are not part of this 'salary' definition. Getting this definition right helps avoid mistakes when you calculate HRA. For a broader view, it's helpful for understanding your salary structure.

Included in Salary for HRA:

• Basic Salary

• Dearness Allowance (if it's part of superannuation or retirement benefits)

• Commission (if it's a fixed percentage of sales turnover)

Not Included in Salary for HRA:

• Other allowances (e.g., Medical, Conveyance, LTA)

• Perquisites

• Bonus

• Employer's contribution to Provident Fund

HRA Exemption Calculator (AY 2025-26)

You can use this HRA calculator to easily determine your exempt and taxable HRA for AY 2025-26. This online HRA calculator will automatically compute your HRA exemption based on the rules. To use the HRA exemption calculator, you need to input the following details:

• Basic Salary (Annual)

• Dearness Allowance (DA) forming part of retirement benefits (Annual)

• Commission as a fixed percentage of turnover (Annual)

• Actual HRA received from your employer (Annual)

• Actual rent paid by you (Annual)

• Select whether you live in a Metro city (Delhi, Mumbai, Kolkata, Chennai) or a Non-metro city.

Once you enter these fields, the calculator will show the exempt HRA and the taxable HRA portion. This tool is powered by TaxBuddy's expert algorithms, ensuring accuracy for the latest Financial Year 2024-25 (Assessment Year 2025-26).

• Field: Basic Salary (p.a.)

• Field: Dearness Allowance (forming part of salary for retirement benefits) (p.a.)

• Field: Commission (as a fixed % of turnover) (p.a.)

• Field: Actual HRA Received (p.a.)

• Field: Total Rent Paid (p.a.)

• Dropdown: City Type (Metro / Non-Metro)

• Button: Calculate HRA Exemption

• Output: Exempt HRA: [Amount]

• Output: Taxable HRA: [Amount]

Examples of HRA Calculation

Let's look at some HRA calculation examples to understand how HRA is calculated. These HRA solved examples will show the inputs and the calculation for each of the three HRA exemption conditions.

Example 1: Employee in a Metro City Mr. A works in Mumbai and provides the following details for FY 2024-25:

• Basic Salary: ₹6,00,000 per year

• Dearness Allowance (forming part of retirement benefits): ₹60,000 per year

• Commission (fixed % of turnover): ₹0

• Actual HRA Received: ₹3,00,000 per year

• Actual Rent Paid: ₹2,40,000 per year (₹20,000 per month)

• City: Mumbai (Metro)

'Salary' for HRA calculation = Basic Salary + DA (part of retirement) + Commission (% of turnover) 'Salary' = ₹6,00,000 + ₹60,000 + ₹0 = ₹6,60,000

Now, let's calculate the three conditions:

• Actual HRA received: ₹3,00,000

• 50% of 'salary' (since Mumbai is a metro city): 50% of ₹6,60,000 = ₹3,30,000

• Actual rent paid minus 10% of 'salary': ₹2,40,000 - (10% of ₹6,60,000) = ₹2,40,000 - ₹66,000 = ₹1,74,000

The HRA exemption will be the minimum of these three amounts:

• ₹3,00,000

• ₹3,30,000

• ₹1,74,000

HRA Exemption for Mr. A = ₹1,74,000 Taxable HRA = Actual HRA Received - HRA Exemption = ₹3,00,000 - ₹1,74,000 = ₹1,26,000

Example 2: Employee in a Non-Metro City Ms. B works in Pune and provides these details for FY 2024-25:

• Basic Salary: ₹4,80,000 per year

• Dearness Allowance (forming part of retirement benefits): ₹0

• Commission (fixed % of turnover): ₹20,000 per year

• Actual HRA Received: ₹1,20,000 per year

• Actual Rent Paid: ₹1,08,000 per year (₹9,000 per month)

• City: Pune (Non-Metro)

'Salary' for HRA calculation = ₹4,80,000 + ₹0 + ₹20,000 = ₹5,00,000

Now, let's calculate the three conditions:

• Actual HRA received: ₹1,20,000

• 40% of 'salary' (since Pune is a non-metro city): 40% of ₹5,00,000 = ₹2,00,000

• Actual rent paid minus 10% of 'salary': ₹1,08,000 - (10% of ₹5,00,000) = ₹1,08,000 - ₹50,000 = ₹58,000

The HRA exemption will be the minimum of these three amounts:

• ₹1,20,000

• ₹2,00,000

• ₹58,000

HRA Exemption for Ms. B = ₹58,000 Taxable HRA = Actual HRA Received - HRA Exemption = ₹1,20,000 - ₹58,000 = ₹62,000

Example 3: Scenario where Actual HRA Received is the Lowest Mr. C works in Hyderabad (Non-Metro) with these details for FY 2024-25:

• Basic Salary: ₹10,00,000 per year

• Dearness Allowance (forming part of retirement benefits): ₹1,00,000 per year

• Commission (fixed % of turnover): ₹0

• Actual HRA Received: ₹1,50,000 per year

• Actual Rent Paid: ₹3,00,000 per year (₹25,000 per month)

• City: Hyderabad (Non-Metro)

'Salary' for HRA calculation = ₹10,00,000 + ₹1,00,000 + ₹0 = ₹11,00,000

Now, let's calculate the three conditions:

• Actual HRA received: ₹1,50,000

• 40% of 'salary' (since Hyderabad is non-metro): 40% of ₹11,00,000 = ₹4,40,000

• Actual rent paid minus 10% of 'salary': ₹3,00,000 - (10% of ₹11,00,000) = ₹3,00,000 - ₹1,10,000 = ₹1,90,000

The HRA exemption will be the minimum of these three amounts:

• ₹1,50,000

• ₹4,40,000

• ₹1,90,000

HRA Exemption for Mr. C = ₹1,50,000 Taxable HRA = Actual HRA Received - HRA Exemption = ₹1,50,000 - ₹1,50,000 = ₹0 (Entire HRA received is exempt)

These examples show how the HRA exemption can vary based on salary, rent paid, HRA received, and city type.

Documents Required to Claim HRA Exemption

Having the correct documents for HRA claim is essential. As per Income Tax Department guidelines, you need several proofs.

Here's a list of HRA proof documents:

• Rent Receipts: These are primary HRA proof. Rent receipts for HRA should include the tenant's name, landlord's name and signature, rent amount, rental period, address of the rented property, and a revenue stamp if the cash payment for rent per receipt exceeds ₹5,000.

• Rental Agreement: A rental agreement is a legal document that supports your claim. It should preferably be notarized. It must detail the landlord and tenant names, property address, rent amount, lease duration, and other terms.

• Landlord's PAN: Providing the landlord PAN for HRA is mandatory if your annual rent payment exceeds ₹1,00,000. If the landlord does not have a PAN, a declaration from the landlord stating this, along with their name and address, may be required. Failure to provide PAN when required can lead to rejection of the HRA claim by the employer for TDS purposes, though you can still claim it in your ITR.

• Form 12BB: You need to submit Form 12BB to your employer to declare your rental expenses and claim HRA. This form consolidates declarations for HRA, LTA, home loan interest, and other deductions. For more details, you can check understanding Form 12BB

• Proof of Rent Payment: Bank statements or online payment confirmations are good proof of rent payment, especially for online transactions. This adds strength to your claim.

HRA Document Checklist:

• [ ] Stamped Rent Receipts (monthly or quarterly)

• [ ] Executed Rental Agreement

• [ ] Landlord's PAN Card copy (if annual rent > ₹1 Lakh)

• [ ] Landlord's Declaration (if PAN not available and annual rent > ₹1 Lakh)

• [ ] Duly filled Form 12BB

• [ ] Bank account statements showing rent payments

Keeping these documents ready will make your HRA claim process smooth.

How to Claim HRA Exemption?

There are two main ways for you to claim HRA exemption. You can claim HRA through your employer or while filing your Income Tax Return (ITR).

Claiming through Employer

The most common way to claim HRA is through your employer. You should submit HRA proof to your employer, such as rent receipts, the rental agreement, and the landlord's PAN if your annual rent is over ₹1,00,000. You also need to submit Form 12BB. Your employer will then verify these documents and consider the eligible HRA exemption amount when calculating your Tax Deducted at Source (TDS) on salary. This means less tax will be deducted from your monthly salary. Your Form 16, issued by your employer, will reflect the HRA exemption allowed.

Claiming in ITR

If you missed submitting HRA proofs to your employer, or if your employer did not consider them for some reason, you can still claim HRA in ITR. When filing your Income Tax Return, you can calculate your eligible HRA exemption and claim it. This is typically shown under the salary income section, where exempt allowances are deducted from your gross salary. You need to report the exempt portion of HRA under 'allowances to the extent exempt u/s 10'. You should keep all your documents handy, as the Income Tax Department may ask for them later. A guide on filing your Income Tax Return can be very helpful here. Refer to the relevant ITR form instructions for exact details.

Special Considerations & Scenarios for HRA Exemption

Paying Rent to Parents/Family Members

Yes, you can claim HRA rent to parents or other family members. This HRA rules for family arrangement is permissible. However, certain conditions ensure it's a genuine tenancy. You must actually pay rent, preferably through bank transfers for clear records. A formal rental agreement with your parents or family member is also essential. Your parents or the family member receiving the rent must report this as rental income in their Income Tax Returns. The rule for landlord's PAN (if annual rent exceeds ₹1,00,000) applies here as well. This practice is generally accepted, sometimes supported by ITAT clarifications.

Owning a House and Claiming HRA

The rules for HRA if own house can be a bit nuanced. You cannot claim HRA if you live in your own house that you occupy. However, there are scenarios where you can claim HRA even if you own a house:

• Own house in City A, live on rent in City B: If you own a house in one city but work and live in a rented accommodation in another city, you can claim HRA for the rent paid in City B. This is quite common for job-related relocations.

• Own house in City A (rented out/family lives there), also live on rent in City A: You might own a house in the same city where you work, perhaps it's rented out or your family members live there. If you then live in another rented house in the same city (maybe for work proximity or other genuine reasons), you could potentially claim HRA. The legitimacy of the arrangement is key.

• Simultaneously claiming HRA and Home Loan Benefits: It's possible to claim HRA and home loan benefits (like interest deduction) at the same time under specific conditions. For instance, if your owned property (on which you have a home loan) is in a different city than where you work and live on rent, you can claim both. Or, if your owned property is rented out, you can claim home loan benefits and also HRA for your rented accommodation.

HRA Exemption if You Change Jobs Mid-Year

If you have a HRA job change during the financial year, the HRA calculation needs careful attention. HRA calculation for multiple employers must be done separately for the period of employment with each employer. This is because your salary structure, the HRA component itself, and even your city of residence (affecting the metro/non-metro HRA rate) might change with the new job. Each employer will issue a Form 16 for their respective employment period. You should consolidate the HRA details from both employers when filing your tax return to ensure the correct total exemption.

HRA for Work From Home / Remote Work Scenarios

Claiming HRA work from home is possible under current rules. If HRA is part of your salary structure and you are working from a rented home, even if it's in your hometown, you can claim the HRA exemption provided you are genuinely paying rent. The location of these rented premises (metro or non-metro) will determine whether the 40% or 50% of 'salary' rule applies for calculating the HRA exemption. This directly addresses modern HRA remote work situations where employees might not be living in the city where their office is physically located. Ensure you have a valid rent agreement and proof of rent payments.

What if HRA is Not Part of Your Salary?

If you pay rent but HRA is not in salary, you might still get some tax relief under Section 80GG of the Income Tax Act. This section provides a deduction for rent paid by individuals who do not receive HRA. To claim Section 80GG deduction, these conditions apply:

• You must be self-employed or a salaried individual.

• You must not have received any HRA from your employer during the year.

• You, your spouse, your minor child, or the HUF you are part of, must not own any residential accommodation in the city where you currently live or work.

• If you own a house in another city, you cannot claim it as self-occupied property if you are claiming an 80GG deduction.

• You need to file Form 10BA (earlier Form 10B was mentioned, but Form 10BA is for Section 80GG) declaring that you meet these conditions. The deduction available is the least of the following:

• ₹5,000 per month (₹60,000 annually).

• 25% of your adjusted total income.

• Actual rent paid minus 10% of your adjusted total income. This deduction is available only if you opt for the Old Tax Regime. It's one of the other tax-saving options available.

HRA Exemption Under the New Tax Regime

A critical point for HRA new tax regime awareness is that HRA exemption under Section 10(13A) is NOT available if an individual chooses the New Tax Regime. Section 115BAC of the Income Tax Act, which lays out the provisions for the new tax regime, does not permit most common exemptions and deductions, including HRA. So, if you opt for the HRA exemption new regime FY 2024-25, you cannot reduce your taxable income by the HRA amount, regardless of the rent you pay.

Common Mistakes to Avoid When Claiming HRA

People often make HRA mistakes when claiming the exemption, which can lead to issues. Avoiding these common errors in HRA claim helps ensure you get the rightful tax benefit and avoid HRA rejection.

• Not having a valid rental agreement: Always have a written and signed rental agreement. This is a primary document.

• Rent receipts not having all details or not being genuine: Ensure rent receipts include landlord's name, tenant's name, amount, period, address, and landlord's signature. Fabricating receipts is illegal.

• Forgetting to submit landlord's PAN: If your annual rent exceeds ₹1 lakh, you must provide your landlord's PAN to your employer. Not doing so can lead to claim disallowance for TDS purposes.

• Incorrectly calculating 'salary' for HRA: Remember 'salary' for HRA means Basic + DA (if part of retirement benefits) + fixed Commission on turnover. Using the wrong salary base leads to incorrect exemption.

• Claiming HRA while living in own house: You cannot claim HRA if you live in a property you own.

• Not ensuring parents (if rent paid to them) declare it as income: If you pay rent to your parents and claim HRA, they must show this rent as income in their tax returns.

• Trying to claim HRA under the New Tax Regime: HRA exemption is not available under the New Tax Regime. Opting for the new regime means foregoing HRA benefits.

• Not keeping records of rent payment: Maintain proof of rent payments like bank statements or e-receipts, especially for digital transactions.

Conclusion: Maximize Your Tax Savings with Correct HRA Claims

HRA tax saving is a significant benefit for salaried individuals. Understanding how to make correct HRA claims is vital for your tax planning. This guide aimed to simplify the HRA exemption rules, calculation, documentation, and claiming process for Assessment Year 2025-26. By correctly calculating your exemption and maintaining proper documents, you can legitimately reduce your tax burden. We encourage you to use the information and the HRA calculator provided to maximize your HRA benefit.

Need help with your HRA calculation or tax filing? Get TaxBuddy's expert assistance.

Frequently Asked Questions (FAQs) about HRA Exemption

Q1. Can I claim HRA if I pay rent to my spouse?

Generally, no. Tax authorities often scrutinize such arrangements as they may not be considered genuine rental payments.

Q2. Is HRA fully taxable if I don't live in a rented house?

Yes, if you don't live in a rented accommodation and pay rent, any HRA you receive is fully taxable.

Q3. What if my landlord does not have a PAN?

If your annual rent exceeds ₹1 lakh and your landlord doesn't have a PAN, you should obtain a declaration from the landlord to this effect along with their name and address. Your employer might still not give HRA benefit for TDS without PAN, but you could claim it in ITR. However, this could attract scrutiny.

Q4. Do I need to submit rent receipts if HRA is below a certain amount?

While some informal advice suggests proofs might not be needed for very small amounts (e.g., rent up to ₹3,000/month), it's always best practice to obtain and keep rent receipts for all claims. Employers often require them regardless of the amount for TDS calculation.

Q5. Can HRA be claimed for rent paid for a house in a different city than my workplace?

Yes, if you genuinely live in a rented house in a different city for work purposes (e.g., family lives in hometown, you work and rent in another city), you can claim HRA.

Q6. What happens if I forget to submit HRA proofs to my employer?

You can still claim HRA exemption when filing your Income Tax Return (ITR).

Q7. Is there any HRA benefit for self-employed individuals?

Self-employed individuals cannot claim HRA exemption under Section 10(13A). However, they may be eligible for a deduction for rent paid under Section 80GG if they meet the conditions.

Q8. How is HRA shown in Form 16?

The exempt portion of HRA is usually shown as a deduction from your gross salary in Part B of Form 16. The taxable portion is included in your salary income.

Q9. Can I claim HRA for more than one house?

No, HRA exemption can only be claimed for the residential accommodation you occupy.

Q10. What if my rent payment changes during the year?

HRA exemption should be calculated proportionately for the periods with different rent amounts. You'll need to calculate it for each period and then sum it up.

Q11. What if my salary changes during the year?

Similar to changes in rent, if your 'salary' for HRA calculation changes (e.g., basic salary revision), the HRA exemption should be calculated on a pro-rata basis for the relevant periods.

Q12. Does HRA include maintenance charges paid to the society?

No, HRA exemption is only for the rent component. Maintenance charges, electricity bills, etc., are not considered part of 'rent paid' for HRA calculation.

Q13. Is HRA exemption calculated monthly or annually?

HRA exemption is calculated for the period during which the rented accommodation is occupied and rent is paid in the financial year. While components are often monthly, the final calculation submitted for tax purposes is typically for the full financial year, considering any monthly variations.

Q14. What if my landlord is an NRI?

If your landlord is a Non-Resident Indian (NRI), you, as the tenant, are required to deduct Tax at Source (TDS) under Section 195 of the Income Tax Act before paying rent. This applies regardless of the rent amount.

Q15. Which ITR form should I use to claim HRA if not claimed via employer?

This depends on your total income and sources of income. For most salaried individuals, it would be ITR-1 (Sahaj) or ITR-2.