What is HRA (House Rent Allowance)?
House Rent Allowance (HRA) is a component of your salary paid by your employer to cover the cost of rented accommodation. Under Section 10(13A) of the Income Tax Act, a portion of the HRA you receive is exempt from income tax — as long as you are actually paying rent for residential accommodation.
HRA exemption is one of the most valuable tax benefits available to salaried employees in India. For FY 2026-27, the rules remain the same: the exemption is the lowest of three prescribed limits, making it critical to understand which condition is capping your benefit.
How is HRA Exemption Calculated? The 3-Condition Formula
The tax-exempt portion of HRA is the minimum of the following three amounts calculated on a monthly basis:
Example: If your Basic is ₹30,000/mo, HRA received is ₹15,000, you pay ₹18,000 rent, and you live in a metro — then: (1) ₹15,000 (2) ₹15,000 (50% of ₹30,000) (3) ₹18,000 − ₹3,000 = ₹15,000. All three are equal, so the full ₹15,000 is tax-free.
HRA Exemption Under Old vs New Tax Regime
The HRA exemption under Section 10(13A) is available only under the Old Tax Regime. If you opt for the New Tax Regime (introduced in Budget 2020 and made the default from FY 2023-24), you cannot claim HRA exemption.
Documents Required to Claim HRA Exemption
- Rent receipts — required if annual rent exceeds ₹1,00,000
- Rent agreement / lease deed — for rent above ₹8,333/month
- Landlord PAN — mandatory if annual rent exceeds ₹1,00,000
- Landlord declaration (if they don't have a PAN)
Submit these proofs to your employer before the end of the financial year so TDS is deducted correctly. If not submitted on time, you can still claim the exemption when filing your Income Tax Return (ITR).