HRA Exemption in New Tax Act 2025: Rules and Limits
- Old Section 10(13A) is now Section 11 read with Schedule II. Substance unchanged.
- Formula unchanged. HRA exemption is the lowest of: actual HRA received, rent paid minus 10% of basic, or 50% (metro) / 40% (non-metro) of basic.
- HRA only works in the old regime. The new regime (Section 202) does not allow HRA exemption.
- Rent agreement and PAN of landlord still required if annual rent exceeds Rs 1 lakh.
House Rent Allowance (HRA) is one of the most commonly claimed exemptions by salaried individuals in India. With the Income Tax Act 2025 replacing the 1961 Act from April 1, 2026: HRA exemption continues. The old Section 10(13A) is now covered under Section 11 (Incomes not included in total income) of the new act.
Section Mapping: Old to New
HRA Calculation Method (Unchanged)
The HRA exemption is the least of the following three amounts:
- Actual HRA received from your employer during the year
- Rent paid minus 10% of basic salary (basic + DA if DA forms part of retirement benefits)
- 50% of basic salary for metro cities (Delhi, Mumbai, Chennai, Kolkata), or 40% of basic salary for non-metro cities
Example: Calculating HRA Exemption
A salaried employee in Bangalore with:
- Basic salary: Rs 50,000/month
- HRA received: Rs 20,000/month
- Rent paid: Rs 22,000/month
Annual calculation:
- Actual HRA received: Rs 2,40,000
- Rent paid minus 10% of basic: Rs 2,64,000 − Rs 60,000 = Rs 2,04,000
- 40% of basic (non-metro): Rs 2,40,000
HRA exemption = Rs 2,04,000 (the least of the three). This amount is excluded from taxable salary under both the old and new act.
HRA exemption is NOT available if you have opted for the new tax regime (Section 202 of the 2025 Act, previously Section 115BAC). This was true under the old act and remains unchanged. If your deductions stack heavily on HRA, stay in the old regime.
Documents Required for HRA Claim
Monthly receipts signed by your landlord, with revenue stamp if rent exceeds Rs 5,000 per month.
Especially important if annual rent exceeds Rs 1 lakh. Stamp paper agreement signed by both parties.
Mandatory if total annual rent exceeds Rs 1,00,000. Without it, your employer cannot process the HRA exemption.
Strongly recommended over cash payments. Creates an audit trail that holds up under scrutiny.
Can You Claim HRA If You Live With Parents?
Yes, you can pay rent to your parents and claim HRA, but with conditions:
- A genuine rent agreement must exist between you and your parent.
- Rent must be actually paid (bank transfer recommended).
- Your parent must declare this rental income in their own tax return.
- You cannot claim HRA if you pay rent to your spouse.
The AO knows this is a common planning move. Make sure the rent paid is reasonable for the area, the bank trail is clean, and the parent files an ITR declaring the rental income. Half-done versions of this strategy fail in scrutiny every year.
Frequently Asked Questions
Is HRA exemption available under the new tax regime?
No. HRA exemption under Section 11 (old Section 10(13A)) is only available if you opt for the old tax regime. The new regime (default since FY 2023-24) does not allow HRA exemption.
Can I claim HRA if I pay rent to my parents?
Yes, you can pay rent to your parents and claim HRA. You need a rent agreement, actual bank transfers, and your parents must declare the rental income in their return. You cannot claim HRA if you pay rent to your spouse.
What is the HRA exemption limit?
HRA exemption is the least of: actual HRA received, rent paid minus 10% of basic salary, or 50% of basic salary (metro) / 40% (non-metro). There is no fixed upper limit, the formula caps it.
Do I need landlord PAN for HRA claim?
Yes, landlord PAN is mandatory if your total annual rent exceeds Rs 1,00,000. Without it, your employer cannot process the HRA exemption on your salary.
If you do NOT receive HRA from your employer but still pay rent, you can claim deduction under Section 80GG (now Section 134). For the new vs old regime trade-off that determines whether HRA even applies, see new regime vs old regime.
Disclaimer: This article provides general information about the Income Tax Act 2025 and is not tax advice. Consult a qualified Chartered Accountant for advice specific to your situation.
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