What Is HRA and Who Can Claim It?
House Rent Allowance (HRA) is a component of your salary paid by the employer to cover rental expenses. Under Section 10(13A) of the Income Tax Act, a portion of HRA is exempt from tax — provided you actually live in a rented accommodation.
You cannot claim HRA if: you live in your own house, you live rent-free with parents (without paying rent), or you opt for the new tax regime.
The Three-Condition Formula
Your HRA exemption is the minimum of these three values:
Actual HRA received from employer
The full HRA component as shown in your salary slip.
Actual rent paid − 10% of basic salary
If you pay ₹20,000/month rent and basic is ₹50,000/month: ₹2,40,000 − ₹60,000 = ₹1,80,000/year.
50% of basic (metro) / 40% of basic (non-metro)
Metro cities: Mumbai, Delhi, Chennai, Kolkata. All other cities are non-metro.
The lowest of these three is your HRA exemption. The remaining HRA (total received minus exempt amount) is added to your taxable income.
Worked Example: Step-by-Step Calculation
Let's take a concrete example of a Mumbai-based salaried employee:
Profile: Salaried employee in Mumbai
Salary Details
HRA Exemption Calculation
Tax saved (30% slab): ₹2,04,000 × 30% = ₹61,200/year
How to Maximize Your HRA Exemption
Strategy 1: Pay Rent to Parents
If you live with your parents and your parents own the house, you can legally pay them rent and claim HRA. This is fully legal and commonly practised. Key requirements:
- Pay rent via bank transfer (not cash) for a clear paper trail
- Get a rent agreement and rent receipts signed by your parent
- Your parent must declare this as rental income in their ITR
- If parent's total income (including rent) stays below the taxable threshold, the family saves tax overall
This is especially powerful if your parents are in the 0% or 5% tax slab while you're in the 30% slab — the family's combined tax outgo drops significantly.
Strategy 2: Optimize the Basic Salary Component
HRA exemption depends on basic salary (Conditions 2 and 3 both use it). If your CTC restructuring allows it, a higher basic means a higher Condition 3 limit (50% of basic). However, it also increases the 10% deduction in Condition 2 — so the optimal basic depends on your specific rent and HRA amounts. Use our HRA calculator to find the exact numbers for your situation.
Strategy 3: Keep Records Properly
Many employees lose HRA claims due to poor documentation. What you need:
- Rent receipts for every month (signed by landlord, with revenue stamp if above ₹5,000/receipt in some states)
- Rent agreement (registered for high-value rentals, unregistered is still accepted by most employers)
- Landlord's PAN if annual rent exceeds ₹1 lakh (mandatory to submit to employer)
- Bank statements showing rent payments
HRA vs Standard Deduction vs Home Loan: Which Saves More?
Salaried employees in the old regime get a standard deduction of ₹75,000 (FY 2025-26) regardless of rent. HRA is on top of that. Here's what maximizing all deductions looks like for a ₹10 lakh CTC employee in Delhi paying ₹20,000/month rent:
| Deduction | Amount | Tax saved (30%) |
|---|---|---|
| Standard deduction | ₹75,000 | ₹22,500 |
| HRA exemption | ~₹1,68,000 | ₹50,400 |
| Section 80C (PPF/ELSS/LIC) | ₹1,50,000 | ₹45,000 |
| Section 80D (health insurance) | ₹25,000 | ₹7,500 |
| Total deductions | ₹4,18,000 | ₹1,25,400 |
HRA Under the New Tax Regime: Not Available
If you opt for the new tax regime, HRA exemption under Section 10(13A) is not available. You lose HRA, LTA, most 80C deductions, and other salary exemptions — but get significantly lower slab rates in exchange.
Whether old or new regime saves you more depends on your total deductions. Generally, if your deductions exceed ₹3.75 lakh, the old regime is better. Below that, the new regime wins. Use our New vs Old Regime Calculator to compare both regimes for your exact numbers.