HRA Exemption Under Section 10(13A): Rules, Formula and Examples for FY 2025-26

Metro percentage

50%

Of basic plus DA; 40% in other cities

Landlord PAN required above

₹1 lakh

Annual rent, to the employer

TDS on rent above

₹50,000/month

2% under section 194-IB

Section 80GG cap

₹60,000

Per year, if no HRA received

What HRA is and who can claim the exemption

House Rent Allowance is a component of salary that employers pay to help with accommodation costs. Section 10(13A) of the Income-tax Act 1961, read with rule 2A, exempts part of it from tax if you live in rented accommodation and actually pay rent. The exemption is not automatic; it depends on your salary structure, your rent and your city.

• You must be a salaried employee receiving HRA as part of your pay. Self-employed people and employees without an HRA component use section 80GG instead.
• You must live in rented accommodation and pay the rent yourself. Staying in your own house, or in a house owned by your spouse, does not qualify.
• You must file under the old tax regime. The new regime under section 115BAC does not allow the 10(13A) exemption.
• The exemption is computed for the period you actually paid rent, so a mid-year move or a few months in your own home changes the figure.

The least-of-three formula

The exempt HRA is the lowest of the following three amounts, computed for the period rent was paid. Salary for this purpose means basic pay plus dearness allowance (if it forms part of retirement benefits) plus any fixed percentage commission on turnover. Special allowances, bonus and reimbursements are excluded.

Because the exemption is the minimum of the three, raising rent beyond a point does not help once limb 3 becomes the binding constraint, and a low HRA component in your CTC caps the benefit no matter how much rent you pay.

Metro cities for HRA

Only four cities count as metros for section 10(13A): Delhi, Mumbai, Kolkata and Chennai. The list has not been updated to include Bengaluru, Hyderabad, Pune, Gurugram, Noida, Chandigarh or Ahmedabad, so employees in those cities use 40% of salary in limb 3, even though rents there are often higher than in Kolkata or Chennai.

Worked example: metro employee

In this case limb 2 binds. Rent of ₹18,000 a month leaves ₹84,000 of HRA taxable. If rent were ₹25,000 a month, limb 2 would rise to ₹2,40,000 and limb 1 would bind, making the whole HRA exempt.

Worked example: non-metro employee

Paying rent to parents or family

You can claim HRA on rent paid to your parents, provided the house is owned by them and the arrangement is genuine. The rent becomes taxable income in their hands under house property, after the 30% standard deduction, and they should report it in their own return. If your parents have little other income, the family as a whole saves tax.

• Have a simple rent agreement and transfer rent by bank every month. Cash payments and back-dated receipts are the first thing an assessing officer questions.
• The parent must own the property. Rent paid to a parent for a house that is in your own name is not rent.
• Rent to a spouse is generally disallowed because the law does not recognise a commercial relationship between husband and wife for this purpose.
• If annual rent exceeds ₹1 lakh, give your employer the parent PAN, and if it exceeds ₹50,000 a month, deduct 2% TDS under section 194-IB.
• AIS now shows rent receipts reported through TDS, so the parent return and your HRA claim must match.

Landlord PAN, rent receipts and TDS

Employers are required by rule 26C to collect Form 12BB with rent receipts and, where annual rent exceeds ₹1 lakh, the landlord PAN. If the landlord has no PAN, a declaration with name and address is accepted, but the department can still ask you to prove the payment. Without proof, the employer taxes the full HRA, and you can only claim the exemption in your return with the risk of a query.

Section 80GG: rent deduction when you get no HRA

If your salary has no HRA component, or you are self-employed, section 80GG allows a deduction for rent paid under the old regime. You must file Form 10BA declaring the rent, and neither you, your spouse, minor child nor HUF may own a house in the city where you live and work. You also must not own a self-occupied house anywhere else.

The deduction is the least of three amounts: ₹5,000 per month (₹60,000 a year), 25% of adjusted total income, and rent paid minus 10% of adjusted total income. Adjusted total income is gross total income before 80GG, long-term capital gains and certain other deductions.

Common HRA mistakes

• Using total CTC or gross salary instead of basic plus DA in limbs 2 and 3, which inflates the exemption.
• Claiming HRA for months when no rent was paid, for example while living with family between two leases.
• Claiming both HRA and home loan interest on a house in the same city without a genuine reason, which is allowed in law but frequently questioned.
• Treating Bengaluru, Hyderabad or Pune as metros and using 50%.
• Skipping the 194-IB TDS on rent above ₹50,000 a month; the default attracts interest and a late fee of ₹200 a day for Form 26QC.
• Filing under the new regime and still entering an HRA exemption in the return, which CPC removes with an adjustment under 143(1)(a).

What to do next

Pull your basic, DA and HRA from the salary slip, total the rent paid during FY 2025-26, and run the HRA calculator to see the exempt figure. Generate rent receipts if you have not kept them, collect the landlord PAN if rent crosses ₹1 lakh, and then compare the old regime total with the new regime before filing.