What is HRA: Rules and Calculation

Most employers in India provide salary allowances to give financial benefits to their employees. These allowances often cover essentials like rent, travel, and medical expenses.

One common allowance is HRA, or House Rent Allowance, which is a standard component of many employees’ salaries. Its purpose is to assist employees in covering the costs of renting a house.

If you’re living in a rented place, you can claim your HRA and a part of it will be exempt from taxes.

How much HRA will be tax-exempt?

The calculation of tax-exempt HRA takes into account three conditions:

  • The actual House Rent Allowance received
  • The actual rent paid, less 10% of your *salary
  • 50% of your salary if you’re in a metro city or 40% in a non-metro city

*Salary here includes Basic Salary + Dearness Allowance.

The least of these amounts will be exempt from your taxable salary.

Don’t worry, you don’t have to grab a paper and pen to calculate it. We have a tool that will do the math for you!

How to Claim HRA Deduction?

To claim an HRA deduction, furnish your employer with necessary documents, such as rent receipts and a rental agreement with your landlord. If your annual rent exceeds Rs. 1 lakh, you’ll also need to provide your landlord’s PAN.

Can you claim HRA under the new regime?

No, along with other deductions, the new tax regime does not allow you to claim HRA as an exemption. Hence, if you opt for the new tax regime, HRA will be completely taxable.

What about business owners/freelancers who don’t receive HRA?

If you are a freelancer, business owner or follow any other profession where you don’t receive a salary, or if HRA is not a component of your salary structure, you can still claim a deduction u/s 80GG.

Read more about it, here!

Reply to this thread if you have any questions and we’ll be happy to answer them.

1 Like

Hi,

I am currently on rent and just bought a home that is under furnishing for two months.
Can I claim HRA and Home loan interest for tax exemption ? which declaration needs to be given for this.

Thank you,
Jignesh Patel

Hi @jignesh.patel47,

Yes, HRA and home loan deduction can be claimed simultaneously, provided that the rented premise and the purchased house are in different cities. You can submit your rent receipts to the employer to claim HRA. You can also claim the deductions at the time of filing the ITR.

Thank you, Surbhi,

Both are in the same city. I just bought a new house and it has been under furnishing renovation for two months.
I want to claim HRA and home loan exemption for two months only. Is it fine or Will it cause problem in filling ITR?

Best regards,
Jignesh Patel

Hello @jignesh.patel47,

Yes, in such genuine conditions, you can claim both HRA and home loan interest.

Hope this clarifies!

My HRA is 540000 but the rent I paid is 96000 so my Amount of Exempted HRA comes out only 6000 INR. Can I do something about it?

Hi @Saurabh_Singh

As per the law, the amount of Exempt HRA will be the least of the following amounts:

  • Actual House Rent Allowance received
  • Actual rent paid less than 10% of salary
  • 50% of salary if you live in a metro city/ 40% in case of a non-metro city
    (Here Salary includes – Basic Salary + Dearness Allowance)

You can calculate the claim amount as applicable to you.

Hi @Shrutika_Shah

When I did that calculation only, it came 6000 INR coming under the 2nd point “Actual rent paid less than 10% of salary”, is there no way else I could get more exemption for it?

Hi @Saurabh_Singh

No. As per law, it is so.