House rent allowance (HRA) exemption explained: How to calculate, tax saving ben
This guide explains House Rent Allowance (HRA) in India - what it is, how to calculate HRA and how to maximise your tax savings

Renting a house can be a significant expense, especially in today"s world. But did you know there"s a way to get some relief on your housing costs? Enter House Rent Allowance (HRA), a valuable benefit offered by many employers in India. In this article, we"ll explain everything you need to know about HRA - what it is, how it works, and how to maximise your exemption.
House Rent Allowance is a significant part of many workers" compensation packages. It provides financial relief for employees who pay rent. However, the tax treatment of this allowance is not straightforward. Depending on the amount of rent you pay compared to your HRA and other salary components, the deduction might be partial or even zero, according to Section 10 [13A] of the Income Tax Act.
According to Section 10 [13A] of the Income Tax Act, 1961, salaried individuals in India can claim an exemption on their House Rent Allowance (HRA). This exemption is calculated by taking the minimum value among the following:
- The HRA amount received from the employer.
- The applicable percentage (50 percent for metro cities, 40 percent for non-metro towns) of the employee"s basic salary plus Dearness Allowance (DA).
- The actual rent paid minus 10 percent of the basic salary and DA.
To claim an exemption for HRA, you must meet these requirements:
Tax relief for housing expenses is not available to self-employed individuals under the current Income Tax Act rules. However, they can still find tax advantages related to rental housing via Section 80GG. This section lets them deduct a portion of their rent payments from their taxable income, following specific limitations.
Again, the Income Tax Act offers tax relief for housing expenses for salaried individuals in India. Section 10 [13A], rule number 2A specifically allows them to claim exemptions for House Rent Allowance.
Follow these steps to claim HRA exemption in India:
- Gather documents: Collect your rent receipts for the entire financial year and a copy of your rental agreement. If your annual rent exceeds ₹1 lakh, you"ll also need your landlord"s PAN card details.
Two options for claiming exemption:
To qualify for a tax deduction under Section 80GG, you"ll need to consider three factors:
You can claim both benefits: tax exemption on your HRA and deduction for your home loan interest. There are two scenarios to consider when claiming HRA while owning a house:
Same city: If you"re renting in the same city where you own a house, you"ll need a valid reason (like a faraway office) to claim HRA. If approved, you can enjoy both benefits.
Different cities: If your job relocation forced you to move to a different city, you can claim HRA and home loan deductions without special justification.
Claiming exemption for HRA offers several advantages for salaried individuals in India:
Claiming HRA exemption can be a valuable tool however, there are a few key things to remember:
How do you submit HRA proof for Income Tax Returns?
Claim HRA on your tax return in two ways:
What is the HRA maximum limit?
There"s no direct maximum limit for HRA. It"s capped at the lowest of your actual HRA received, salary factor (linked to the city), and actual rent minus 10 percent of your salary.
First Published: Jul 19, 2024, 18:30
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