House Rent Allowance: Calculation, Exemption, Rules and More

House Rent Allowance
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House Rent Allowance- HRA Meaning and Overview

House Rent Allowance or HRA is an important part of the salary of a salaried employee. It is paid by the employer as a type of remuneration for the employee’s accommodation expenses. HRA also constitutes a major part of an employee’s salary and hence can attract a fair amount of tax if the available HRA income tax exemption is not availed. Moreover, not only employees, but even self-employed individuals can also claim HRA deductions. We will discuss everything related to HRA deduction and how you can claim it.

What is House Rent Allowance?

HRA allowance exemption means the amount of tax deduction that a salaried employee or self-employed individual can claim from his/her annual income while filing ITR. The HRA deduction helps the individual to lower his/her annual income and save some tax. 

HRA Deduction for Salaried Employees

House Rent Allowance or HRA for salaried employees is defined under Section 10 (13A) of the Income Tax Act. Further, rule 2A explains the amount of exemption admissible under the section.

Calculation of HRA Exemption - Salaried Employees

Salaried individuals can claim a tax deduction of the least of the following under the HRA exemption section:

  • Actual rent paid
  • Actual amount of HRA received from the employer
  • In metro cities: 50% of the salary (basic salary + DA)
  • In non-metro cities: 40% of the salary (basic salary + DA)
  • Actual rent amount should not be more than 10% of the salary (basic salary + DA)

Let us understand this with an example:

Suppose Ashok lives in a metro city where he earns a salary (basic salary + DA) of Rs 50,000 per month and pays a rent of Rs 15,000. Besides, he gets an HRA of Rs 20,000 per month. Now let us understand his case with the following table:

ConditionHRA limits (maximum tax HRA exemption Ashok can claim)
Actual rentRs 15,000 (least amount)
Actual amount of HRA received from the employerRs 20,000
In metro cities: 50% of the salary (basic salary + DA)50% of salary = Rs 25,000
Actual rent amount minus 10% of the salary (basic salary + DA)10% of Rs 50,000 = Rs 5,000
Now, Rs 15,000 (least amount in the table) - Rs 5,000 (10% of the salary) = Rs 10,000
HRA Exemption AmountRs 10,000
Taxable HRA AmountRs 15,000 - Rs 10,000 = Rs 5,000


 

Hence, house rent allowance is exempt from tax = Rs 10,000 per month, i.e; Rs 1.2 lakh in the financial year

How to Claim HRA Tax Deduction?

The process of cleaning tax exemption on HRA is simple. You just need to submit the rent receipts while filing the ITR, which will serve as proof or record for the tax exemption that you are claiming. Note that if the rent paid is over Rs 1 lakh in the financial year, you will also have to submit the landlord’s PAN details.

HRA Deduction for Self-employed Individuals

Although self-employed individuals are not eligible to use the tax benefits given under the provisions of section 10 (13A), they can enjoy similar tax benefits and claim exemptions under section 80GG of the Income Tax Act.

Calculation of HRA Exemption - Self-employed Individuals

Self-employed individuals can claim a maximum tax deduction on HRA in the least of the following amount:

  • Rs 5,000 per month
  • 25% of the adjusted total income
  • Actual rent minus 10% of the adjusted total income

Let us understand this with an example:

Suppose Ashok pays a rent of Rs 5,000 per month and his adjusted income is Rs 4 lakh per annum. The maximum amount he can claim as tax deduction can be understood from the table:

ConditionMaximum tax exemption Ashok can claim
Rs 5,000 per monthRs 5,000 (Rs 60,000 per annum)
25% of the adjusted total incomeRs 1 lakh
Actual rent minus 10% of the adjusted total incomeRs 60,000 - 10% of Rs 4 lakh = Rs 20,000
Satisfied ConditionRs 20,000


So Ashok can claim a tax deduction of Rs 20,000 per annum because it is the least amount among all the cases.

How to Claim HRA Tax Deduction?

Just like the case of the salaried employed, the self-employed individual also needs to submit all the rent receipts while filing ITR. Also, in case the annual rent is over Rs 1 lakh, the taxpayer also needs to furnish the PAN details of the landlord. Additionally, the self-employed individual also needs to file a declaration in Form 10BA.

Condition Under Section 80GG of Income Tax Act

In order to claim a tax deduction on rent, the self-employed person must meet the following conditions:

  • The individual should not be receiving any HRA from his/her employer
  • He must have filed a declaration in Form 10BA
  • The house in which he is living and paying rent should not be owned by himself, his spouse, minor child, or his HUF
  • The individual should not be owning any residential property for accommodation in his occupation whose value is determined as per the provisions laid under Section 23(2)(a) or Section 23(4)(a)
  • Can salaried individuals who are not receiving HRA from their employers claim tax deductions?
  • I live in a house owned by my parents, how can I enjoy HRA tax exemption in this case?
  • What is the maximum tax deduction on rent that I can claim in Section 80GG?
  • Can I claim tax deductions on Dearness Allowance (DA) under Section 10 (13A) or Section 80GG of the Indian Tax Act?
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