HRA

Full form: House Rent Allowance

Tax & Deductions

HRA is a salary component that helps cover rental housing expenses. It is partially or fully exempt from income tax under Section 10(13A) -- making it one of the most valuable tax-saving salary components for those living in rented accommodation.

In detail

HRA exemption = minimum of three amounts:n1. Actual HRA received from employern2. 50% of basic salary (metro: Mumbai, Delhi, Kolkata, Chennai) or 40% (non-metro)n3. Actual rent paid minus 10% of basic salarynnHRA is only available under the old tax regime. You must be actually paying rent -- you cannot claim HRA if you own the house you live in. However, paying rent to parents for living in their house is allowed (parents must declare rental income in their ITR).

Formula

HRA exemption = Minimum of: (a) Actual HRA received (b) 50% of basic salary (metro) or 40% (non-metro) (c) Rent paid - 10% of basic salary

Real-life example

🇮🇳 India example

Mumbai-based Priya: Basic Rs 60,000/month, HRA received Rs 25,000/month, rent paid Rs 22,000/month. (a) Rs 25,000 (b) 50% of Rs 60,000 = Rs 30,000 (c) Rs 22,000 - Rs 6,000 = Rs 16,000. Exemption = minimum = Rs 16,000/month = Rs 1.92L/year. Tax saving at 30% = Rs 57,600/year.

Frequently asked questions

Can I claim both HRA and home loan deduction? ▼

Yes, if you own property in a different city from where you work, or if you rent out your owned property and live in a rented house in the same city. You can claim HRA on the rent you pay and Section 24 deduction on home loan interest for your property.

Is PAN of landlord required for HRA? ▼

Yes, if annual rent exceeds Rs 1 lakh (Rs 8,333/month), you must provide your landlord's PAN to your employer. If the landlord does not have PAN, get a signed declaration from the landlord to submit to your employer.