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HRA or House Rent Allowance is an allowance given by an employer to an employee as part of the employee’s salary. The employee can get a tax deduction on HRA under Section 10(13)(A) of the Income Tax Act, 1961.
HRA Eligibility
Resident individuals who get income by way of salary and who are given HRA by their employer. Employees who do not get HRA as well as self employed/unemployed/retired persons can take the benefit of Section 80GG, if they pay rent and want a deduction on the same.
HRA Benefits
HRA gives relief to employees who do not own their house or are living in a city/area away from their homes and hence have to pay rent. It allows employees to adjust some of the rent they pay against their income tax liability. The amount of rent that employees are allowed to deduct from their income tax liability under HRA is higher than the relief given to non-HRA renters under Section 80GG (which is capped at Rs 60,000 per year).
HRA Exemption Rules
You can claim tax deduction under HRA rules for the lowest of the following:
- Actual HRA received
- 50% of your salary if you stay in a metro (40% for non metros)
- Actual rent paid – 10% of your salary
HRA Limits with example
The limits on HRA are as described above. You can see them work in the following example.
Assume that Mr A has a salary of Rs 50,000 per month and gets HRA of Rs 15,000 per month. He pays rent of Rs 18,000 per month. Further assume that he works in a metro. The tax deduction available to him under Section 10(13)(A) is as follows:
Salary for the purposes of HRA calculation includes basic salary + dearness allowance. However it does not include other payments like conveyance allowance or medical reimbursement.
HRA Formula
In order to understand HRA, use the table below.
HRA deduction is given to the lowest of the following:
| Actual HRA (House Rent Allowance Received) |
| 50% of your salary if you live in a metro city (40% in non-metros) |
| Actual rent paid – 10% of your salary |
Example of HRA Calculation
Actual HRA received: (Rs 15,000*12 = Rs 1,80,000)
50% of salary: (Rs 50,000*12*0.5 = Rs 300,000)
Actual rent paid – 10% of salary: (Rs 18,000 * 12 – Rs 60,000 = 1,56,000)
Hence Mr A will get an HRA deduction of Rs 1,56,000 under Section 10(13)(A).
How to Claim HRA
In order to claim HRA, you need to have salary slips which explicitly mention how much HRA is being given to you. You also need to have rent receipts. Finally, if you are paying more than Rs 100,000 per annum in rent, you have to disclose the PAN number of the landlord. If the landlord is an NRI, you have to deduct tax (TDS) at 30%.
FAQs on HRA
1) Can I claim HRA if I live with my parents?
Yes. However your parents will have to show the rent received in their income.
2) Can claim HRA if I own a house or jointly own a house?
Yes, if you are not living in the house that you own. This may be because you work in a different city or area from where your house is located. However in this case you will have to pay tax on any rent received by you by renting out your house. If you have left your house vacant, you will have to pay tax on ‘deemed rent’ for your house.