House Rent Allowance (HRA)

Definition 

House Rent Allowance (HRA) is a component of an employee’s salary paid to help meet rental housing expenses. Under the Income Tax Act, a portion of HRA received can be partially or fully exempt from tax, subject to specific conditions.

HRA applies only to salaried employees and is commonly included in the salary structure in India.

What is the Purpose of HRA

The purpose of HRA is to help salaried employees manage rental housing expenses while offering tax relief under applicable income tax provisions.

The main purposes of HRA are to:

• Support rental housing costs
  Helps employees meet monthly house rent expenses as part of their salary.
• Provide tax relief
  Allows eligible employees to reduce taxable income by claiming HRA exemption under the Income Tax Act.
• Enable transparent salary structuring
  Separates housing-related compensation from basic salary for clearer payroll and tax reporting.
• Offset high rental costs in urban areas
  Partially compensates employees for higher rent expenses, especially in metro cities.

House Rent Allowance (HRA) and Income Tax Act, 1961

House Rent Allowance (HRA) is governed by Section 10(13A) of the Income Tax Act, 1961, read with Rule 2A of the Income Tax Rules. These provisions define the conditions and limits for claiming HRA exemption.

Key pointers under the Income Tax Act, 1961:

• HRA exemption is available only to salaried employees who receive HRA as part of their salary.
• The employee must be actually paying rent for a residential accommodation.
• HRA exemption is allowed under Section 10(13A), subject to prescribed limits.
• The exempt amount is the least of the following three:
• Actual HRA received from the employer
• Rent paid minus 10% of salary (Basic + DA, if applicable)
• 50% of salary for employees living in metro cities (Delhi, Mumbai, Chennai, Kolkata) or 40% for non-metro cities
• The term “salary” for HRA calculation includes Basic Salary and Dearness Allowance (if it forms part of retirement benefits).
• Rent receipts are mandatory if annual rent exceeds the prescribed threshold.
• PAN of the landlord must be provided if annual rent exceeds ₹1,00,000.
• HRA exemption is not available if the employee lives in their own house.
• If HRA is not received, employees may still claim rent deduction under Section 80GG, subject to conditions.
• HRA exemption is not allowed under the new tax regime, unless explicitly permitted as per applicable assessment year provisions.

Key Points of HRA

• HRA is a salary allowance, not a reimbursement
• Tax exemption is available under Section 10(13A) of the Income Tax Act
• Exemption depends on salary, rent paid, and city of residence
• Higher exemptions apply to metro cities (Delhi, Mumbai, Chennai, Kolkata)
• HRA must be declared and supported by valid documents

Who Is Eligible for HRA Benefits?

Employees are eligible for HRA benefits if:

• They receive HRA as part of their salary
• They live in a rented accommodation
• They pay rent and can produce rent proof

Self-employed individuals are not eligible for HRA but may claim a rent deduction under Section 80GG.

Documents Required to Claim HRA Benefits

To claim HRA exemption, employees typically need:

• Rent receipts
• Rental agreement (if applicable)
• Landlord’s PAN (mandatory if annual rent exceeds ₹1 lakh)
• Proof of rent payment (bank statements, if required)

How Is the HRA Exemption Calculated?

The exempt portion of House Rent Allowance (HRA) is calculated as the lowest of the following three amounts:

• Actual HRA received
  The total HRA amount paid by the employer during the year.
• Rent paid minus 10% of salary
  Rent paid during the year minus 10% of salary, where salary includes basic pay and dearness allowance (if applicable).
• Percentage of salary based on city of residence
  50% of basic salary for employees living in metro cities, or 40% for those living in non-metro cities.

Any HRA amount remaining after this calculation is treated as taxable income and added to the employee’s salary for tax purposes.

HRA Exemption Calculation Table 

Step-by-Step Calculation

HRA Exemption Result

• HRA Exempt Amount: ₹1,80,000 (lowest of the three)
• Taxable HRA: ₹0

FAQs on House Rent Allowance (HRA)

What is the HRA house rent allowance?

HRA is a salary component paid to employees to help cover rental housing expenses.

How can I calculate my HRA?

You can calculate HRA by comparing actual HRA received, rent paid minus 10% of basic salary, and 40%/50% of basic salary—whichever is lowest is exempt.

What is the new HRA rule?

There is no new standalone HRA rule, but documentation requirements and scrutiny under the new tax regime have increased.

Can I remove HRA from salary?

Yes. Employers may restructure salary to remove HRA, but this may increase taxable income.

What is HRA eligibility?

Salaried employees paying rent and receiving HRA in their salary are eligible.

What is the maximum limit for HRA?

There is no absolute maximum limit. Exemption is capped based on the prescribed calculation method.

How is HRA calculated in payslip?

HRA is shown as a separate salary component. Taxable and exempt portions are calculated during payroll processing.

What is the difference between HRA and rent paid?

HRA is an allowance received from the employer; rent paid is the actual expense incurred by the employee.

Can I claim HRA more than Form 16?

No. HRA claimed in the income tax return must match or be lower than what is reflected in Form 16.

Is HRA taxable?

HRA is partially taxable. The exempt portion is calculated under Section 10(13A).

Can self-employed individuals or freelancers claim HRA?

No. They cannot claim HRA but may claim rent deduction under Section 80GG.

Can employees living in their own house claim HRA?

No. HRA exemption is allowed only if the employee pays rent for accommodation.