HRA Exemption Under Old vs New Tax Regime in 2025
- Nimisha Panda
- 2 days ago
- 8 min read
House Rent Allowance remains one of the most significant components of tax planning for salaried individuals in India. The rules, however, differ sharply between the old and new tax regimes in 2025. The old regime continues to offer HRA exemption under Section 10(13A), while the new regime under Section 115BAC has removed this benefit entirely, even if HRA is part of the salary. Understanding how exemption is calculated, who qualifies, and when each regime becomes financially beneficial helps taxpayers make informed decisions at the time of filing. With updated standard deductions and simplified rules in the new regime, choosing the right option depends on income structure, documentation, and actual rent paid.
Table of Contents
Is HRA Exemption Allowed in the New Tax Regime in 2025?
The new tax regime for FY 2025-26 removes most exemptions and deductions, including House Rent Allowance (HRA). This means salaried individuals who choose the new regime cannot claim any tax relief under Section 10(13A), regardless of rent paid or salary structure. The new regime instead offers lower slab rates and a simpler approach but does so by eliminating traditional tax-saving components. Taxpayers who rely heavily on HRA as a major deduction usually find the old regime more beneficial, especially in metro cities where rent forms a large part of the monthly budget.
How HRA Exemption Works Under the Old Tax Regime
Under the old tax regime, HRA continues to be one of the most commonly claimed deductions. It reduces taxable income based on actual rent paid, salary components, and whether the taxpayer lives in a metro or non-metro city. Employers typically mention HRA in Form 16, and taxpayers calculate the available exemption using prescribed rules. Since the old regime encourages structured tax planning, HRA remains a strong tax-saving tool for working professionals who stay on rent.
Conditions for Claiming HRA Exemption Under Section 10(13A)
HRA exemption under Section 10(13A) can be claimed only when rent is actually paid for residential accommodation. The taxpayer must receive HRA as part of their salary, and the rented house must not belong to the taxpayer or spouse. If the annual rent exceeds ₹1 lakh, quoting the landlord’s PAN is mandatory. Additionally, individuals living with parents may still claim HRA, provided rent is genuinely paid and documented with proper receipts.
HRA Calculation Rules for Metro and Non-Metro Cities
The Income Tax Act differentiates between metro and non-metro cities for HRA calculation. For metro cities (Delhi, Mumbai, Kolkata, Chennai), 50% of basic salary and DA is considered. For non-metro cities, the limit is 40%. The final HRA exemption is the least of the following three values: actual HRA received, rent paid minus 10% of salary, or 40%/50% of salary based on city category. This method ensures that the exemption reflects real housing expenses relative to income and location.
Required Documents for Claiming HRA Exemption
To claim HRA exemption, employees must maintain rent receipts, rental agreements, proof of rent payments (bank transfers or UPI records), and landlord details including PAN for high-value rent payments. Employers may request these documents while preparing Form 16. If payments are made in cash, signed receipts are essential, though digital proofs offer stronger evidence in case of scrutiny by the tax department.
Why HRA Exemption Is Not Available in the New Tax Regime
The new tax regime emphasizes simplicity by using lower tax rates and eliminating exemptions. HRA exemption was removed to prevent complexity in salary structuring and documentation. Since the new regime avoids deduction-based tax planning, exemptions like HRA no longer form part of the calculation. This means taxpayers who prefer lower rates and minimal paperwork may choose the new regime, even though they forfeit HRA benefits.
Key Differences Between Old vs New Regime for HRA in 2025
The old regime allows taxpayers to claim HRA, standard deduction, Section 80C deductions, and other exemptions. The new regime offers no HRA exemption but includes revised slab rates and certain limited deductions. For renters in large cities, the old regime usually results in higher savings, while taxpayers with fewer deductions may pay less under the new regime. The correct choice depends on salary structure, rent level, and total deductions available.
Practical Examples Comparing Old and New Regime Tax Impact
Suppose a salaried individual living in Mumbai pays significant rent and has other deductions. Under the old regime, HRA plus other deductions may reduce their taxable income substantially. In contrast, under the new regime, they lose HRA benefits but gain access to lower slab rates. Another taxpayer paying minimal rent may find that the new regime offers better savings despite losing HRA. These examples highlight that the optimal choice varies by lifestyle and location.
When Old Regime Offers More Savings for HRA Claimants
The old regime is generally more beneficial for taxpayers who: – pay high rent in metro cities – have HRA as a major salary component – qualify for multiple deductions such as 80C, 80D, and home loan benefits – receive a structured salary with allowances For such individuals, the combined impact of HRA plus other deductions often outweighs the lower rates of the new regime.
When New Regime Is Better Despite Losing HRA Exemption
The new regime offers better savings for taxpayers who: – have low or no rent expenses – receive minimal allowances – do not invest in tax-saving instruments – prefer simpler filing without documentation Since the new regime reduces tax rates and removes exemptions, individuals with minimal deductions often find it more cost-effective.
Impact of HRA on Salary Structure, Form 16, and Documentation
Employers commonly include HRA in salary structures to help employees reduce taxable income under the old regime. Form 16 reflects HRA paid and any exemption claimed. Accurate documentation such as rent receipts and rental agreements is necessary for both employer verification and future assessments. Under the new regime, HRA is still shown in salary components but does not provide any tax benefit.
Role of Digital Platforms Like TaxBuddy in Choosing the Right Regime
Digital tax platforms have become an important support system for salaried individuals trying to decide between the old and new tax regimes. Instead of manually comparing deductions, exemptions, and slab rates, these platforms simplify the process by using automated tools and structured data analysis. A platform like TaxBuddy reviews the complete salary structure, including allowances, HRA components, rent payments, deductions under Chapter VI-A, and home loan benefits. This helps create an accurate comparison of tax liability under both regimes.
By using real-time calculators, the platform shows the difference in tax outflow instantly, allowing taxpayers to make an informed choice rather than relying on guesswork. TaxBuddy also includes expert-reviewed recommendations for users who have variable income, multiple Form 16s, or complicated salary structures. This ensures that the final decision is not just automated but also verified by professionals who understand the nuances of tax rules.
TaxBuddy further assists in correctly reporting rent details, which is essential for those claiming HRA. Incorrect or mismatched data often results in AIS discrepancies or notices. The platform cross-checks rent receipts, PAN of landlord (if required), and monthly rent entries to ensure proper compliance. It also identifies inconsistencies between Form 16, AIS, and the taxpayer's entries, reducing the risk of errors.
Overall, digital platforms like TaxBuddy streamline the entire decision-making process, improve accuracy, and offer a smooth filing experience. Through a combination of automation, expert support, and strong compliance checks, taxpayers are able to choose the most beneficial regime confidently and avoid unnecessary complications during assessment.
Conclusion
Understanding how HRA works under each tax regime is essential for making the right financial decision. While the old regime supports HRA-based tax planning, the new regime focuses on simpler, deduction-free filing. Evaluating rent payments, salary structure, and other deductions is key to determining which option delivers better savings.
For anyone looking for assistance in tax filing, it is highly recommended to download the TaxBuddy mobile app for a simplified, secure, and hassle-free experience.
FAQs
Q1. Can I claim HRA exemption under the new tax regime? No. The new tax regime does not allow HRA exemption. All House Rent Allowance received becomes fully taxable. This is because the new regime removes almost all major exemptions and deductions, including HRA, LTA, 80C, and others. Taxpayers who need HRA exemption must choose the old tax regime at the time of filing their ITR.
Q2. What documents are required to claim HRA exemption under the old regime? To claim HRA under the old regime, essential documents include rent receipts issued by the landlord, a valid rental agreement, and the landlord’s PAN if annual rent exceeds ₹1 lakh. These documents help verify the claim and ensure that the exemption is accurately calculated based on salary, rent paid, and city of residence.
Q3. Can I switch between old and new tax regimes every year? Yes, salaried individuals can freely choose between regimes every financial year while filing their income tax return. This flexibility allows taxpayers to pick the regime that offers the lowest tax liability based on their annual income, deductions, and exemptions. However, individuals with business income can switch only once in their lifetime.
Q4. Does receiving HRA affect my bank account opening process? Not directly. Banks typically ask for basic salary records such as Form 16, payslips, or employment details while opening an account. Rent receipts or HRA-related documents are generally not required. However, some banks may request proof of address, which can include a rental agreement if you choose to submit it.
Q5. What are the advantages of the new tax regime despite no HRA exemption? The new tax regime offers lower tax rates, a higher standard deduction, and a very simple structure with fewer calculations. It benefits taxpayers who do not have major deductions such as 80C investments, home loan interest, or HRA claims. With fewer documents required, filing under the new regime is quicker and easier.
Q6. What happens if my employer does not allow HRA exemption during payroll—can I still claim it while filing ITR? Yes. Even if the employer does not provide HRA exemption while calculating monthly TDS, it can still be claimed directly in the ITR under the old regime. As long as the taxpayer has proper rent-related documents, the exemption will be processed at the time of tax filing.
Q7. Can I claim HRA if I live with my parents? Yes, but only if there is a genuine rental arrangement. The taxpayer must pay actual rent to the parents, maintain a rental agreement, and collect rent receipts. Parents must also report this rent as income under “Income from House Property.”
Q8. Can I claim both home loan benefits and HRA at the same time? Yes. If the taxpayer owns a house in another city or lives in a rented accommodation for work-related reasons, both HRA and home loan benefits can be claimed simultaneously under the old regime. The claims must match actual circumstances and documentation.
Q9. Is HRA taxable if my employer does not provide it separately? If HRA is not included in your salary structure, the exemption cannot be claimed. Only employees who receive a specific HRA component as part of their salary are eligible to claim the exemption under the old regime.
Q10. What if my landlord does not have a PAN? If annual rent exceeds ₹1 lakh, the landlord’s PAN is normally required. If the landlord does not have a PAN, the taxpayer must obtain a declaration from the landlord confirming the same. This helps avoid issues during verification by the income tax department.
Q11. Can I claim HRA if I live in my own house? No. HRA cannot be claimed when the taxpayer lives in self-owned accommodation. Since no rent is actually paid, the exemption is not available under either tax regime.
Q12. How can TaxBuddy help with claiming HRA exemption accurately? TaxBuddy’s platform automatically checks salary structure, rent receipts, and rental agreements to compute the correct HRA exemption. It ensures that taxpayers choose the right tax regime, avoid mismatches with Form 16, and receive maximum tax savings. Expert-assisted plans provide additional verification to help prevent errors, notices, or missed exemptions.
