Income Tax
HRA Exemption: Calculation, Rules & the Mistakes That Get Caught
House Rent Allowance is the biggest tax break most salaried Indians have — often worth ₹50,000–₹2,00,000 a year in exemption. It's also one of the most scrutinised, because fake rent receipts have made the department suspicious. Here's how to claim every rupee, safely.
The least-of-three formula
Your exempt HRA (Section 10(13A)) is the minimum of:
- Actual HRA received from your employer
- Rent paid minus 10% of salary (Basic + DA)
- 50% of salary in metro cities (Delhi, Mumbai, Kolkata, Chennai) — 40% elsewhere
Worked example
Basic ₹4,80,000/year · HRA received ₹2,40,000 · Rent ₹2,40,000 · City: Bengaluru (non-metro):
- (1) ₹2,40,000
- (2) 2,40,000 − 48,000 = ₹1,92,000
- (3) 40% × 4,80,000 = ₹1,92,000
Exempt: ₹1,92,000. Taxable HRA: ₹48,000. (Check your own numbers in 30 seconds on the free HRA Calculator.)
Rules people miss
- Landlord PAN is mandatory if annual rent exceeds ₹1,00,000 — no PAN, no employer exemption.
- TDS on high rent: paying over ₹50,000/month? You must deduct 2% TDS u/s 194-IB — tenants get notices for skipping this.
- Bengaluru, Gurgaon, Pune, Hyderabad are NOT metros for HRA — only the four original metros get 50%.
- New regime = no HRA exemption. If your HRA exemption is large, that alone can swing you to the old regime — compare both here.
- No HRA component in salary? Claim rent under Section 80GG instead (max ₹60,000/year, conditions apply).
Paying rent to parents — legal, if done right
Completely legitimate, and routinely upheld — when it's real:
- Pay by bank transfer every month (cash trails fail scrutiny)
- Have a simple rent agreement
- Parents must declare the rent as income in their ITR
- You cannot claim HRA for a house you co-own
The cases that get caught: round-tripped cash, no agreement, parents not reporting income, or rent suspiciously equal to the exemption-maximising number with no bank trail.
What if scrutiny comes?
AIS now cross-references rent (via landlord TDS and your employer's records). If you receive a query, the answer is your paper trail: agreement, bank statements, landlord PAN. Got a notice already? Our notice-reply experts handle exactly these. And for filing season, expert ITR filing claims HRA correctly the first time.