What is HRA: Rules and Calculation

Income Tax Tax Savings & Deductions
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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.

2 Likes
2

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

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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.

4

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

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Hello @jignesh.patel47,

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

Hope this clarifies!

6

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?

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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.

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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?

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Hi @Saurabh_Singh

No. As per law, it is so.

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Were to claim HRA in deduction head during ITR 2 filing

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Hey @Gaurav_Toshniwal,

HRA will be reported under income from salary and you can claim the exempt HRA as a deduction.

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I have 8.5 LPA taxable income. My company is not providing HRA in salary slip due to failed to disclose the House rent details while joining. But i have 17K HR per month. I selected Old tax regime. Due to no HRA from my company. Now i have to pay more than 60,000 money as a tax. So is there any way to claim HRA & make it zero tax.

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Hi @Dinesh_Venkat,

Since you’ve opted for the old regime, you can can claim the HRA exemption while filing your ITR even if your company hasn’t included it in your salary slip.

Make sure you keep rent receipts and bank statements as proof of rent payment. Since your employer hasn’t considered HRA, it won’t reflect in Form 16, but you can still claim it separately in your ITR.

This is assuming that HRA is a part of your salary structure and CTC. If not, you’ll not be able to claim HRA, however, you can claim a deduction for rent paid under section 80GG.

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House Rent Allowance (HRA) is a salary component provided by employers to assist employees in covering rental expenses. Generally, it is exempt from tax under Section 10(13A) of the Income Tax Act. Salary, rent paid, and city of residence determine HRA exemption. Documentation that is properly prepared ensures tax benefits.