HRA Exemption — How to Calculate House Rent Allowance Tax Exemption in India

House Rent Allowance (HRA) exemption is the most widely used salary tax exemption for employees living in rented accommodation. Under Section 10(13A) of the Income Tax Act, a portion of the HRA received from the employer is exempt from income tax. Here is the complete guide to calculating your HRA exemption correctly.

HRA Exemption — The Three-Factor Rule

The HRA exemption is the lowest of the following three amounts:

• Actual HRA received from the employer in the year
• 50% of basic salary (for employees in metro cities — Delhi, Mumbai, Chennai, Kolkata); 40% of basic salary for employees in non-metro cities (including Calicut/Kozhikode)
• Actual rent paid minus 10% of basic salary

"Basic salary" for HRA purposes = Basic Pay + Dearness Allowance (if forming part of salary for retirement benefits).

Worked Example

Employee in Calicut: Basic salary ₹40,000/month; HRA received ₹15,000/month; Monthly rent paid ₹12,000:

• Actual HRA received: ₹15,000
• 40% of basic salary (non-metro): ₹16,000
• Rent paid – 10% of basic: ₹12,000 – ₹4,000 = ₹8,000
• Lowest = ₹8,000 per month → Annual exemption = ₹96,000
• Taxable HRA: ₹15,000 – ₹8,000 = ₹7,000/month (₹84,000/year)

Conditions for Claiming HRA Exemption

• You must be an employee (not self-employed) receiving HRA as part of salary
• You must actually be living in a rented accommodation — HRA cannot be claimed if you own the house you live in
• You must pay rent — actual payments must be evidenced by rent receipts
• The house you claim HRA for must not be owned by you (but can be owned by a spouse/parent — with some conditions)

Rent Receipts and Landlord PAN

• Rent receipts are required to be submitted to employer for processing Form 16
• If annual rent exceeds ₹1 lakh (₹8,333/month), the landlord's PAN must be provided to the employer
• If the landlord does not have a PAN, they must provide a declaration to that effect

HRA Exemption Without Employer — Self-Filing Route

If your employer does not provide HRA (or does not give full credit), you can directly claim the Section 10(13A) exemption when filing your ITR — by declaring HRA received and rent paid in the appropriate schedule. You do not need your employer to process it.

Conclusion

HRA exemption can significantly reduce your taxable salary — but requires correct computation and proper documentation. SPOTON handles salary ITR filing for individuals across Kerala, ensuring maximum HRA and other exemptions are claimed correctly. Contact us for expert income tax filing services.