HRA Exemption: Complete Guide to Section 10(13A) for FY 2025-26
House Rent Allowance is one of the most significant tax-saving tools for salaried Indians who live in rented accommodation. Under Section 10(13A) of the Income Tax Act, a portion of the HRA you receive from your employer is exempt from tax — reducing your taxable income and saving you real money every year. For employees in metro cities paying ₹30,000–₹50,000 monthly rent, HRA exemption can easily save ₹30,000–₹90,000 in taxes annually.
How HRA exemption is calculated
The tax-exempt portion of your HRA is the minimum of three amounts. This is not a choice — the Income Tax Act mandates that all three rules are evaluated and the lowest value is your exemption:
| Rule | Formula | What it means |
|---|---|---|
| Rule 1 | Actual HRA received | Your exemption can never exceed what your employer actually pays you as HRA |
| Rule 2 | Rent paid − 10% of basic | Only the rent that exceeds 10% of your basic qualifies — the first 10% is assumed affordable |
| Rule 3 | 50% of basic (metro) or 40% (non-metro) | A ceiling tied to your basic salary and city category |
The binding rule — the one that produces the lowest number — is what determines your exemption. This calculator shows you exactly which rule is limiting your HRA and by how much.
Which cities count as metro?
For HRA purposes, only six cities are classified as metro: Mumbai, Delhi (including NCR), Kolkata, Chennai, Bengaluru, and Hyderabad. In these cities, Rule 3 uses 50% of basic salary. All other cities — including large ones like Pune, Ahmedabad, Jaipur, Surat, Lucknow, and Chandigarh — are non-metro, where the cap is 40%.
This classification has not been updated in decades and remains a point of criticism, but it is the law as it stands for FY 2025-26.
HRA is Old Regime only
HRA exemption under Section 10(13A) is not available in the new tax regime. If you've opted for the new regime, your entire HRA is taxed as part of salary income. This is often the single biggest factor in choosing between regimes — an employee paying ₹40,000 rent in Mumbai could lose ₹2–3 lakh in exemption by choosing the new regime.
Use the Tax Regime Calculator to compare both regimes with your exact figures and see whether HRA exemption tips the balance in favour of the old regime for your income level.
Paying rent to parents
You can claim HRA by paying rent to your parents — this is fully legal and a widely used tax planning strategy. The requirements: a genuine rent agreement, actual bank transfers (not cash), and your parent must declare the rental income in their ITR. You cannot claim HRA if you pay rent to your spouse. If your parent is in a lower tax bracket or has no other income, the net family tax saving can be substantial.
Documents needed for HRA claim
Keep these ready: rent receipts (monthly or quarterly) with landlord's signature, a rent agreement (notarised is better but not mandatory), bank transfer proof for every month, your landlord's PAN if annual rent exceeds ₹1,00,000, and Form 12BB submitted to your employer before the end of FY. Revenue stamps of ₹1 are technically required on receipts above ₹5,000 — while rarely enforced, it's best practice.
Section 80GG — for employees without HRA
If your salary structure does not include HRA, you may claim Section 80GG instead. The deduction is the minimum of: ₹5,000 per month, 25% of total income (after other deductions), or rent paid minus 10% of total income. The conditions are strict — neither you nor your spouse can own a house in the city of employment, and you cannot be receiving HRA from any employer. Section 80GG is available only in the old regime.
HRA + home loan — can you claim both?
Yes, if you own a home in one city and pay rent in another. Common scenario: you bought a flat in your hometown but work in a different city on rent. You can claim Section 24B interest deduction (up to ₹2L) on the home loan AND HRA exemption on the rent you pay. These are independent provisions. If both properties are in the same city, the claim becomes harder to defend, though it is not explicitly prohibited.
Common mistakes to avoid
- Claiming HRA without actual rent receipts or bank transfer proof — the most common reason for rejection during assessment
- Not providing landlord's PAN when rent exceeds ₹1 lakh/year — your employer may refuse to allow the exemption
- Claiming HRA in the new regime — it is simply not available, and filing this way will generate a demand notice
- Inflating rent amounts — the IT department cross-references with Form 26AS and landlord's ITR
- Forgetting that HRA is calculated on basic salary, not CTC or gross — a common confusion that leads to overestimation