How HRA (House Rent Allowance) works
The exempt HRA is the least of three amounts: the actual HRA received, the rent paid minus 10% of basic, and 50% of basic in a metro (40% in a non-metro). Whatever is above the exempt amount is taxable. You need rent receipts, and the landlord's PAN if annual rent exceeds ₹1,00,000.
Why HRA (House Rent Allowance) matters
HRA is one of the biggest legitimate tax savings for salaried renters, but only under the old tax regime; the new regime does not allow the HRA exemption.
How much HRA is actually tax-free
House rent allowance is only partly exempt from tax, and only if you actually pay rent. Under the old tax regime the exempt amount is the least of three figures: the HRA your employer pays, 50% of basic for metro cities (40% for non-metro), or rent paid minus 10% of basic. Whatever is left over is taxable. So an employee in Delhi on Rs 30,000 basic paying Rs 15,000 rent exempts the least of (actual HRA), (Rs 15,000, being 50% of basic) and (Rs 15,000 rent minus Rs 3,000, that is Rs 12,000), so Rs 12,000 a month is exempt. Two catches worth knowing: HRA exemption is not available under the new tax regime, and if your annual rent crosses Rs 1,00,000 you must report the landlord's PAN. Keep rent receipts and the rent agreement, because this is a commonly scrutinised deduction.
Frequently asked questions
Is HRA fully tax-free?
No. Only the exempt portion, worked out as the least of three amounts, is tax-free; the rest is taxable, and the exemption applies only under the old regime.
Can I claim HRA if I live with parents?
Yes, if you genuinely pay them rent and can show receipts, though your parents must then declare that rent as income.