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The 3 HRA Conditions
① Actual HRA Received
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② 50% of Basic Salary
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③ Rent Paid − 10% of Basic
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Exemption = Minimum of the 3 values above
House Rent Allowance (HRA) is a component of salary that employers provide to help employees meet the cost of rented accommodation. Under Section 10(13A) of the Income Tax Act, a portion of HRA is exempt from income tax. The exempt amount is calculated using three conditions defined by the Income Tax Department. Only the minimum of the three values qualifies as exempt from tax.
The Three HRA Exemption Conditions
Condition one is the actual HRA received from the employer in that financial year. Condition two is 50% of the basic salary plus dearness allowance for employees living in metro cities (Delhi, Mumbai, Kolkata, and Chennai), or 40% for employees in non-metro cities. Condition three is the actual rent paid minus 10% of basic salary plus dearness allowance.
The exemption equals the minimum of these three values. Any HRA received above the exempt amount is added to taxable income and taxed at the applicable slab rate. If you do not pay rent, condition three is zero and the entire HRA becomes taxable.
Metro vs Non-Metro HRA Exemption Comparison
| Scenario | Basic Salary | HRA Received | Rent Paid | Metro Exemption | Non-Metro Exemption |
|---|---|---|---|---|---|
| High rent, metro | ₹60,000 | ₹24,000 | ₹22,000 | ₹16,000 | ₹16,000 |
| Moderate rent, metro | ₹60,000 | ₹24,000 | ₹15,000 | ₹9,000 | ₹9,000 |
| Low rent, metro | ₹60,000 | ₹24,000 | ₹7,000 | ₹1,000 | ₹1,000 |
| High rent, non-metro | ₹60,000 | ₹18,000 | ₹18,000 | ₹12,000 | ₹12,000 |
Key Conditions to Claim HRA Exemption
You must be a salaried employee receiving HRA as a salary component. Self-employed individuals cannot claim HRA under Section 10(13A). If annual rent paid exceeds ₹1 lakh, you must provide the landlord’s PAN to the employer. Rent paid to parents is allowed if the tenancy is genuine and your parents declare the rental income in their returns. Rent paid to a spouse is not allowed.
Employees who do not receive HRA but live in rented accommodation can claim deduction under Section 80GG, which has a different calculation method and a maximum limit of ₹60,000 per year.
Frequently Asked Questions
Only salaried employees who receive HRA as a component of their salary package and who live in rented accommodation can claim HRA exemption under Section 10(13A). Self-employed individuals and business owners cannot claim this exemption. They can instead claim a deduction under Section 80GG, which has a separate calculation and an annual cap of u20b960,000.
Yes. If you own a house in one city and live in rented accommodation in another city for work, you can simultaneously claim HRA exemption on the rent paid and deduct home loan interest under Section 24(b) and principal repayment under Section 80C. Both claims are allowed when the property is in a different location from where you work and live.
One of the three HRA exemption conditions subtracts 10% of your annual basic salary from your annual rent paid. This 10% represents a base assumption that a minimum share of your income should go toward housing. If your rent minus 10% of basic is low or zero, your HRA exemption is limited to that figure. For example, if your basic salary is u20b960,000 per month and rent is u20b97,000, then u20b97,000 minus u20b96,000 (10% of basic) gives only u20b91,000 as condition three.
No. HRA exemption is not available under the New Tax Regime introduced in the Union Budget 2020. The New Tax Regime offers lower tax rates but removes most exemptions and deductions, including HRA, LTA, Section 80C investments, home loan principal, and standard deduction. Salaried employees who pay high rent in metro cities are often better off under the Old Tax Regime where HRA exemption can significantly reduce taxable income.
Rent paid to parents is allowed for HRA purposes if the arrangement is genuine. Your parents must legally own the property. You must pay rent by bank transfer and have a formal rent agreement. Your parents must declare the rental income in their income tax return under the head 'income from house property.' Rent paid to a spouse is not permitted, as the Income Tax Department does not recognise such arrangements as arm's-length transactions.