HRA Exemption Under Section 10(13A): How to Calculate and Claim It Correctly

The single most under-claimed deduction by salaried Indians is the House Rent Allowance exemption. Either the formula is misunderstood, or the rent receipts are incomplete, or the salary structure is set up in a way that lets HRA disappear into "special allowance". With the old tax regime still alive for those who opt out of the new default regime, getting HRA right can save anywhere between Rs 20,000 and Rs 2,00,000 of tax in a year.

This guide walks through Section 10(13A) end to end: the formula, how to apply it month by month if your rent or city changes, the documentation the assessing officer expects, and the specific traps that show up on Form 16 when HRA is claimed incorrectly.

What HRA Is and Who Can Claim It

House Rent Allowance is a component of salary paid by an employer to compensate the employee for rented housing. The Income Tax Act does not tax the entire HRA; under Section 10(13A) read with Rule 2A, a portion is exempt if specific conditions are met.

You can claim HRA exemption only if:

• You are a salaried employee (not self-employed). Self-employed individuals can claim a similar deduction under Section 80GG, which has its own rules.
• Your salary structure has a separately defined HRA component.
• You actually pay rent for residential accommodation that you occupy.
• The accommodation is not owned by you.

If any of these conditions fail, the HRA component remains fully taxable as salary.

The Three-Formula Test

The exempt portion of HRA is the lowest of these three amounts, calculated for each month or each period during which the conditions remain the same:

1. Actual HRA received during the period.
2. Rent paid minus 10% of salary for the period.
3. 50% of salary if the rented accommodation is in Delhi, Mumbai, Kolkata or Chennai. 40% of salary if the accommodation is in any other city.

"Salary" for HRA purposes means basic salary plus dearness allowance (if it forms part of retirement benefits) plus commission as a fixed percentage of turnover. It excludes bonus, all other allowances and perquisites.

A Worked Example

Consider Riya, a salaried employee in Mumbai with the following monthly figures for FY 2025-26:

• Basic salary: Rs 60,000 per month (Rs 7,20,000 annual)
• HRA received: Rs 25,000 per month (Rs 3,00,000 annual)
• Rent paid: Rs 22,000 per month (Rs 2,64,000 annual)

Apply the three formulas annually:

1. Actual HRA received: Rs 3,00,000.
2. Rent paid minus 10% of salary: Rs 2,64,000 minus Rs 72,000 = Rs 1,92,000.
3. 50% of salary (Mumbai is a metro): Rs 3,60,000.

The lowest is Rs 1,92,000. Riya's HRA exemption is Rs 1,92,000. The remaining Rs 1,08,000 of HRA received is taxable as salary.

Metro vs Non-Metro: What Counts

For FY 2025-26 (AY 2026-27), only four cities are treated as metros for HRA: Delhi, Mumbai, Kolkata and Chennai. Despite their population, Bengaluru, Hyderabad, Pune, Ahmedabad and Gurgaon are non-metros for FY 2025-26.

From FY 2026-27 (April 1, 2026): Under the Income Tax Rules 2026, four additional cities are classified as metros: Bengaluru, Hyderabad, Pune and Ahmedabad. Employees in these cities qualify for the 50% salary cap from FY 2026-27 onwards. Gurgaon remains non-metro.

If you move from a metro to a non-metro mid-year (or vice versa), the calculation must be done period by period, with the 50% / 40% applied to the respective months.

Rent Receipts and Landlord PAN

The standard documentation that an employer collects (and that the assessing officer can ask for during scrutiny) is:

• Rent receipts for at least the months for which HRA exemption is claimed. Receipts should show landlord name, your name, rented address, rent amount, period covered, mode of payment and the landlord's signature. Revenue stamps are required if rent is paid in cash above Rs 5,000.
• Rent agreement for the relevant period.
• Landlord PAN if the annual rent exceeds Rs 1,00,000. This is mandatory under CBDT Circular 8/2013.
• If the landlord does not have PAN, a self-declaration signed by the landlord stating the same, accompanied by Form 60.

Salaried employees often submit rent receipts only at the end of the year. The cleaner practice is to keep a digital copy of every monthly receipt and the rent agreement renewal in one folder, organised by financial year.

Common Traps That Disallow HRA

1. Rent Paid to Family

Paying rent to a parent or spouse is allowed and a perfectly legitimate way to claim HRA, but the assessing officer will examine it closely. The arrangement must be real:

• The parent must declare the rental income in their own ITR under "Income from House Property".
• Money must move from your bank account to the parent's bank account each month.
• A formal rent agreement should exist.
• The parent must own the property (or be a co-owner with a clear share).

Rent paid to a spouse is often disallowed because the property is typically considered jointly held or because the substance of the transaction does not look like a tenancy. Tax tribunals have ruled both ways; assume scrutiny if you go this route.

2. HRA Without Actual Rent

Some employees claim HRA exemption while living with parents and not actually paying rent. This is treated as concealment of income if discovered. The 26AS / AIS now picks up rent paid through bank transfers, and high-value cash payments without proof are flagged.

3. Salary Structure Without an HRA Head

If your offer letter and salary slip do not show "HRA" as a separate component, the employer cannot apply Section 10(13A) at the TDS stage. Some companies bundle HRA into "special allowance" or a single CTC line. Ask HR to restructure the salary breakup.

4. HRA and Home Loan Interest in the Same Year

You can claim HRA exemption (for the rented house you live in) and Section 24(b) home loan interest deduction (for a self-owned property) in the same year, but only if the two properties are genuinely separate and the self-owned property is in a different city or genuinely cannot be used for residence (under construction, let out, far from workplace). Document the reason in your records. See our Section 24 home loan guide for the conditions.

5. Old vs New Regime

Under the new tax regime (default from AY 2024-25), HRA exemption is not available. If you want HRA, you must opt for the old regime at ITR filing time (salaried) or by filing Form 10-IEA (business income). Run the math both ways before deciding; see our old vs new regime guide for a full breakeven comparison.

How HRA Appears on Form 16 and Form 121

For FY 2025-26, your Form 16 (replaced by Form 130 from Tax Year 2026-27) will show:

• Gross salary including HRA in Part B.
• Exemption under Section 10(13A) as a separate line.
• Net taxable salary after the exemption.

If the employer has applied the wrong exemption (because they did not collect rent receipts, applied the metro rule incorrectly, or used the wrong salary base), you can correct it at ITR filing. The Income Tax Return forms allow you to enter the correct HRA exemption; the system reconciles your claim with Form 16 and may issue an automated notice if the deviation is large.

The cleanest approach is to give complete documentation to HR by the deadline they set (usually January or February of the financial year) so Form 16 reflects the right figure. Last-minute claims at ITR time still work but create more rectification cycles.

Section 80GG: HRA's Cousin for the Self-Employed

If you do not receive HRA as part of your salary (for example, you are self-employed, a freelancer, or your salary structure has no HRA), you can claim a deduction under Section 80GG instead. The conditions:

• You are paying rent for accommodation you occupy.
• Neither you nor your spouse nor your minor child owns a residential property in the city where you reside.
• You file a declaration in Form 10BA with your ITR.

The deduction is the lowest of:

1. Rs 5,000 per month (Rs 60,000 a year).
2. 25% of total income (computed before this deduction).
3. Rent paid minus 10% of total income.

Section 80GG, like HRA, is allowed only under the old regime.

Action Steps Before You File ITR

1. Pull your rent agreement and verify the rent amount, address and lease period.
2. Compile rent receipts month by month for the financial year.
3. If annual rent exceeds Rs 1,00,000, get the landlord's PAN. If unavailable, get the Form 60 declaration.
4. Recompute HRA using the three-formula test for each period of the year. Note any change in rent, city or salary structure mid-year.
5. Reconcile the exemption you compute with the figure shown on Form 16. If they differ, decide whether to claim the correct figure in your ITR and prepare to defend it.
6. Decide between old and new regime by running the tax regime comparison. Claim HRA only if you are filing under the old regime.

Where Tax Garden Helps

Salaried employees lose HRA exemption every year because the salary breakup, rent documentation, or regime choice is wrong. Tax Garden's tax compliance services include a full HRA review as part of every ITR filing: we compute the exemption under all three formulas, validate documentation, decide the regime, and file. Our team has seen most of the edge cases (rent to parent, partial year rent, multiple cities) so the filed return survives scrutiny.

For related deductions, see our Section 80C deductions list and income tax slab rates for FY 2026-27.

Frequently Asked Questions

Can I claim HRA exemption if I live with my parents?

Yes, provided you actually pay rent to your parents, the rent flows through a bank transfer, the parent declares the rental income in their ITR, and the parent owns or co-owns the property. Without these, the claim is treated as bogus and disallowed if scrutinised.

Is Bengaluru a metro for HRA purposes?

For FY 2025-26 (AY 2026-27), no. Only Delhi, Mumbai, Kolkata and Chennai are metros. From FY 2026-27 onwards, Bengaluru is classified as a metro under the Income Tax Rules 2026, along with Hyderabad, Pune and Ahmedabad, raising the limit from 40% to 50% of salary for these cities.

Is HRA available under the new tax regime?

No. The new tax regime under Section 115BAC, which is the default from AY 2024-25, does not allow HRA exemption. To claim HRA you must opt for the old regime, which salaried filers can do each year at ITR time.

Do I need landlord PAN if the annual rent is below Rs 1,00,000?

No. Landlord PAN is mandatory only if the annual rent exceeds Rs 1,00,000. Below that threshold, rent receipts and a rent agreement are sufficient evidence.

Can I claim HRA and home loan interest under Section 24 in the same year?

Yes, in two situations. First, if your self-owned house is in a different city from your workplace and you have to rent another house to live in. Second, if your self-owned house is genuinely not occupiable, for example under construction or let out. Document the reason carefully.

What if my employer did not include HRA on Form 16?

You can still claim HRA in your ITR by entering the correct figure in the salary schedule. Keep rent receipts, the rent agreement and bank statements ready. The Income Tax Department may match your claim against Form 16 and AIS data.

Sources

This guide is verified against Section 10(13A) of the Income Tax Act 1961 (carried forward under the Income Tax Act 2025), Rule 2A of the Income Tax Rules, CBDT Circular 8/2013 (landlord PAN requirement), and the latest published guidance on incometax.gov.in for AY 2026-27. The FY 2026-27 metro expansion to eight cities is per the Income Tax Rules 2026. Confirmatory coverage from ClearTax, Tax2Win, BankBazaar and IndiaFilings practitioner content was reviewed. Always validate the specific figures against your salary slip, Form 16 and rent documentation before filing.