HRA (House Rent Allowance) Exemption – How to Save Tax

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HRA (House Rent Allowance) Exemption – How to Save Tax

For salaried employees, House Rent Allowance (HRA) is one of the biggest opportunities to save income tax legally. If you are living in a rented house and receiving HRA as part of your salary, you can claim exemption under Section 10(13A) of the Income Tax Act, 1961.

Many taxpayers either don’t claim HRA correctly or miss it altogether, resulting in higher tax liability. This blog explains what HRA is, how it is calculated, eligibility rules, and tips to maximize your tax savings.

What is HRA (House Rent Allowance)?

House Rent Allowance (HRA) is the portion of your salary given by your employer to meet rental expenses if you live in a rented accommodation. The good news is that HRA is partially exempt from tax, meaning you can claim it as a deduction and reduce your taxable income.

Eligibility to Claim HRA Exemption

You can claim HRA exemption if:

  • You receive HRA as part of your salary package.

  • You actually pay rent for a residential property.

  • You have rent receipts or proof of payment.

Important: If you live in your own house (self-occupied property), you cannot claim HRA exemption.

How is HRA Exemption Calculated?

HRA exemption is calculated using the following three components. The lowest of these three amounts is exempt from tax:

  1. Actual HRA Received from employer.

  2. 50% of Basic Salary (if living in metro cities – Delhi, Mumbai, Kolkata, Chennai) or 40% of Basic Salary (for non-metro cities).

  3. Rent Paid minus 10% of Basic Salary.

Example Calculation

Suppose:

  • Basic Salary: ₹40,000 per month

  • HRA Received: ₹18,000 per month

  • Rent Paid: ₹15,000 per month

  • City: Mumbai (Metro)

Calculation:

  • Actual HRA Received = ₹18,000

  • 50% of Basic Salary = 50% of ₹40,000 = ₹20,000

  • Rent Paid – 10% of Basic Salary = (₹15,000 – ₹4,000) = ₹11,000

HRA Exempt = Minimum of above three = ₹11,000 (per month)

So, ₹11,000 x 12 = ₹1,32,000 will be exempt from tax and balance HRA (₹84,000) will be taxable.

Documents Required to Claim HRA

To claim HRA exemption, you need:

  • Rent receipts with landlord’s name, rent amount, and address.

  • PAN of landlord (mandatory if annual rent exceeds ₹1,00,000).

  • Rental agreement (in some cases).

Special Case: Paying Rent to Parents

Yes! You can pay rent to your parents and claim HRA exemption, provided:

  • You have a valid rental agreement.

  • Rent is actually paid (through bank transfer recommended).

  • Parents declare this rental income in their ITR (if taxable).

This is a smart and legal way to save tax within the family.

Tips to Maximize HRA Tax Savings

  • Ensure rent receipts are submitted on time to HR or uploaded on the payroll portal.

  • Choose a metro city address if applicable to claim 50% of basic salary benefit.

  • Keep digital payment proof (bank transfer, UPI) as supporting evidence.

  • If rent is high, try to negotiate salary structure with more HRA component.

HRA Exemption vs. Section 80GG

If you do not receive HRA (e.g., self-employed individuals), you can still claim deduction for rent paid under Section 80GG. However, the deduction is subject to conditions and has a maximum limit of ₹60,000 per year.

Conclusion

HRA exemption is one of the easiest and most effective ways to save tax for salaried individuals. By understanding the rules, calculating correctly, and keeping proper documentation, you can significantly reduce your tax outgo.

So, next time you file your ITR, don’t forget to claim your HRA exemption and maximize your savings!

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