HRA – House Rent Allowance –

Exemption Rules & Tax Deductions

A guide on how to claim HRA exemption and save taxes
Updated on Mar 20, 2019 - 12:15:07 AM
Salaried individuals who live in a rented house can claim the House Rent Allowance
(HRA) to lower taxes. This can be partially or completely exempt from taxes. The
allowance is for expenses related to rented accommodation. If you don’t live in a rented
accommodation, this allowance is fully taxable.

1. How is Tax Exemption From HRA Calculated?

2. Can I Claim HRA and Deduction on Home Loan Interest as well?
3. When Do You Need Landlord’s PAN?
4. What if my Employer Doesn’t Provide me With HRA?
5. Illustration
6. How to Claim Deduction Under Section 80GG?
7. How to Claim HRA When Living With Parents?

1. How is Tax Exemption From HRA

Calculated?

The deduction available is the least of the following amounts:

a. Actual HRA received;
b. 50% of [basic salary + DA] for those living in metro cities (40% for non-metros); or
c. Actual rent paid less 10% of basic salary + DA

2. Can I Claim HRA and Deduction on Home

Loan Interest as well?
Yes, you may claim the allowance as it has no bearing towards your home loan interest
deduction. Both can be claimed.
Try out our free HRA calculator to determine your HRA exemption. This calculator
shows you on what part of your HRA you have to pay taxes – i.e. how much of your
HRA is taxable and how much is exempt from tax.

3. When Do You Need Landlord’s PAN?

If you have taken a house on rent and are making a payment in excess of Rs 1,00,000
annually – remember to obtain the landlord’s PAN or you may lose out on the HRA
exemption. Landlords without a PAN must be willing to give you a declaration refer
circular No. 8/2013 dated 10 October 2013.
Tenants paying rent to NRI landlords must remember to deduct TDS of 30% before
making the payment towards rent.

4. What if my Employer Doesn’t Provide me

With HRA?
If you are making payments towards rent for any furnished or unfurnished residential
accommodation occupied by you, but do not receive HRA from your employer, you can
still claim the deduction and that would be under Section 80GG.
Conditions that must be fulfilled to claim this deduction:
a. You are self-employed or salaried
b. You have not received HRA at any time during the year for which you are claiming
80GG
c. You or your spouse or your minor child or HUF of which you are a member – do not
own any residential accommodation at the place where you currently reside, perform
duties of office, or employment or carry on business or profession.
In case you own any residential property at any place other than the place mentioned
above, then you should not claim the benefit of that property as self-occupied. That
other property would be deemed to be let out in order to claim the deduction under
section 80GG.
5.Illustration
We can understand the HRA computation better with the following example:
Mr. A, employed in Delhi, has taken up an accommodation on rent for which he pays a
monthly rent of Rs 15,000 during the Financial Year (FY) 2017-18 i.e. Assessment
Year(AY) 2018-19.. He receives a Basic Salary of Rs 25,000 monthly along with DA of
Rs. 2000, which forms a part of the salary. He also receives a HRA of Rs 1,00,000 from
his employer during the year. Let us understand the HRA component that would be
exempt from income tax during the FY 2017-18.

Sl Particulars Amount (in Amount (in

No Rs) Rs.)

1 Actual HRA received 1,00,000

2 Rent paid (15000 p.m. * 12 months) 1,80,000 1,47,600

minus(-)
10% of {(250 00p.m.*12) + (2000p.m.*12)}
i.e.10% of Basic + DA 32,400

3 50% of {(25000p.m.*12) + (2000p.m.*12)} 1,62,000

(50% is considered as the accomodation is in Delhi)

4 Exempt HRA = lowest of 1,2,& 3 1,00,000

Therefore, in the above example, the entire HRA received from the employer is exempt
from income tax.

6. How to Claim Deduction Under Section

80GG?
The least of the will be considered as the deduction under this section:
a. Rs 5,000 per month;
b. 25% of adjusted total income*;
c. Actual Rent less 10% of adjusted total Income*
*Adjusted Total Income means Total Income Less long-term capital gain, short-term
capital gain under section 111A and Income under section 115A or 115D and
deductions 80C to 80U (except deduction under section 80GG).
7. How to Claim HRA When Living With
Parents?
Let’s understand this with an illustration. Samiksha works at an MNC in Bangalore.
Her company provides her with house rent allowance. But she doesn’t live in a
rented accommodation, but with her parents. How can she make use of this
allowance? Samiksha can pay rent to her parents and claim the allowance provided.
All she has to do is enter into a rental agreement with her parents and transfer money to
them every month.
This way Samiksha can make a nice gesture and give back to her parents, and two,
save some taxes. But remember: Samiksha’s parents will have to show the rent she
paid on their income tax returns. But as a family, you will be saving up.

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Related Sections
 Salary Guide
 House property Guide
 HRA Calculator
 Understand your Form 16
 Understand your Form 16A
 Understand your Form 26AS
 Income Tax Slabs for FY 2015-16
 Difference between Form 16 and Form 16A