Tax Exemption on HRA: House Rent Allowance (HRA) is an important part of an employee’s salary. It is given by the employer to help cover rental expenses. HRA can be partially or fully tax-exempt, depending on certain conditions.
To claim an HRA exemption, the employee must meet specific requirements. The employee should be salaried, living in a rented house or flat, and paying rent. Additionally, the company must provide HRA as part of the salary for this purpose.
What is HRA (House Rent Allowance)?
House Rent Allowance (HRA) is a part of your Cost to Company (CTC). It is given by your employer to help cover the cost of living in a rented house.
How to Calculate HRA Exemption?
The lowest of the following amounts can be claimed as an HRA exemption:
- Actual HRA received from your employer.
- 50% of (Basic Salary + DA) if you live in a metro city (Delhi, Kolkata, Mumbai, or Chennai).
- 40% of (Basic Salary + DA) if you live in a non-metro city.
- Actual rent paid – 10% of (Basic Salary + DA).
Is HRA Taxable?
HRA is a part of your salary and is initially considered taxable income. However, if you live in a rented house, you can claim a tax exemption. A partial or full exemption can be claimed under Section 10 of the Income Tax Act.
If a person does not live in a rented house, the entire HRA amount will be taxable. Also, self-employed individuals cannot claim HRA exemption, but they can avail of a tax deduction on rent paid.
Since the threshold of deductions to be better off in the old regime has been raised, couples can do some smart tax planning. Load all the deductions & HRA with one spouse. Other one goes into new regime. Both better off. Story by @Shiprasorout https://t.co/gv1TWZC7gd pic.twitter.com/FVLdjXWFI2
— Neil Borate (@ActusDei) February 11, 2025
How to Claim HRA Exemption in 2025?
To claim HRA exemption, the employee must submit rent receipts or a lease agreement as proof of rent payment. If the rent is paid to a family member, certain conditions apply, which may affect taxability.
HRA exemption helps reduce an employee’s tax burden, especially for those living in big cities with high rents. The exemption calculation depends on factors such as salary, rent paid, HRA received, and the city of residence.
Tax Department detects HRA Fraud with illegal usage of PANs
3 Mistakes salaried make while claiming HRA as a Tax deduction
1) Not making a rent agreement, especially while paying rent to family members, relatives or friends Remember if there is scrutiny your HRA deduction… pic.twitter.com/gG9CuwUQOS
— CA Chirag Chauhan (@CAChirag) March 30, 2024
Important Points to Remember
Employees should keep proper documents and ensure they meet the eligibility criteria to avail of HRA exemption benefits.