What is House Rent Allowance (HRA)?
House Rent Allowance (HRA) is a component of an employee’s salary paid by the employer to help cover the cost of rented residential accommodation. It is applicable to individuals who live in a rented house and pay rent on a regular basis. HRA is typically shown as a fixed component in the salary structure and is included in the CTC.
Although HRA is included in total salary, the full amount is not always taxable. Under the Income Tax Act, a portion of HRA can be claimed as HRA tax exemption, subject to specific conditions being met.
The amount of HRA exemption depends on factors such as:
- Actual rent paid by the employee
- Basic salary and dearness allowance, if DA forms part of retirement benefits
- City of residence, classified as metro or non-metro
Only the eligible portion qualifies for HRA exemption, while the remaining amount is added to taxable income and taxed as per the applicable income tax slab.
HRA being part of CTC does not mean you automatically get a tax exemption. If an employee does not live in rented accommodation or fails to submit valid rent receipts, the entire HRA becomes taxable despite being included in the salary package.
Rent Receipt Format for HRA Exemption (Checklist + Sample Fields)
Rent receipts are a key document for claiming House Rent Allowance (HRA) exemption under Section 10(13A) of the Income Tax Act. Even when rent is genuinely paid, missing or incorrect details on rent receipts are one of the most common reasons for HRA claims being rejected during employer verification or income tax scrutiny.
A rent receipt should clearly establish who paid the rent, to whom it was paid, for which property, and for which period. The format does not need to be complex, but it must contain all mandatory fields.
Mandatory Details in a Rent Receipt for HRA
A valid rent receipt should include the following details:
- Tenant’s name
Name of the employee who is paying the rent and claiming HRA. - Landlord’s name
Name of the property owner receiving the rent. - Complete address of the rented property
Full residential address where the employee is staying. - Rent amount paid
Monthly rent amount clearly mentioned in figures. - Rent period
Month or period for which the rent is paid (for example, April 2024). - Date of payment
Actual date on which rent was paid. - Mode of payment
Cash, bank transfer, cheque, or UPI. - Landlord’s signature
Recommended and often required by employers to validate the receipt. - Revenue stamp
Required if rent is paid in cash and exceeds ₹5,000 for a receipt. - Landlord’s PAN
Mandatory if total annual rent exceeds ₹1 lakh. If PAN is not available, a written declaration from the landlord must be obtained.
All details on the rent receipt should match salary records, rent declarations submitted to the employer, and bank statements, where applicable. Even small inconsistencies can lead to the disallowance of the HRA exemption.
Common Rent Receipt Mistakes to Avoid
- Missing landlord name or signature
- Incorrect or incomplete property address
- Rent amount not matching salary declarations
- Rent period not specified
- Landlord PAN missing when annual rent exceeds ₹1 lakh
- Handwritten receipts that are unclear or inconsistent
Ensuring that rent receipts are accurate, complete, and consistent with other records significantly reduces the risk of HRA exemption being disallowed during tax filing or assessment.
Who Can Claim HRA?
HRA can be claimed by individuals who receive House Rent Allowance as part of their salary and actually pay rent for residential accommodation. The availability of HRA tax exemption depends on the nature of income and whether rent is being paid.
Salaried employees are eligible to claim HRA exemption if:
- HRA is included as a component of their salary or CTC
- They live in a rented house and pay rent
- Valid rent receipts and supporting documents are submitted
- The conditions prescribed under Section 10(13A) of the
- Income Tax Act are met
The exemption is calculated based on salary structure, rent paid, and city of residence. If these conditions are satisfied, a portion of HRA qualifies for tax exemption and the balance is taxed.
Self-employed individuals cannot claim HRA because they do not receive a salary or HRA from an employer. However, they may still claim tax benefits for rent paid under Section 80GG, subject to separate rules and limits.
If no rent is paid during the financial year or if the individual lives in a self-owned house, the HRA exemption cannot be claimed and the entire HRA amount becomes taxable.
HRA Exemptions Under Income Tax
HRA exemption is allowed under the Income Tax Act to reduce the tax burden on salaried individuals who live in rented accommodation. This exemption is provided under Section 10(13A) and applies only when certain conditions are met. It is important to note that HRA exemption is different from a deduction, as only a portion of the HRA received becomes non-taxable.
HRA tax exemption can be claimed only if:
- The employee receives HRA as part of their salary
- Rent is actually paid for residential accommodation
- The employee does not live in a self-owned house
- Proper rent receipts and supporting documents are submitted
The exemption amount is not fixed. It is calculated based on prescribed rules and is limited to the lowest of specific values, which are defined under tax laws.
It is also important to understand the difference between HRA exemption and HRA deduction:
- HRA exemption reduces taxable income by excluding a portion of HRA received
- HRA is allowed only as an exemption. Section 80GG provides a separate deduction for rent paid in cases where HRA is not received.
If the conditions under Section 10(13A) are not met or required documentation is missing, the entire HRA received becomes taxable, even if rent is paid.
House Rent Allowance Exemption Limit
The HRA exemption is subject to a maximum limit prescribed under the Income Tax Act. It is not a fixed amount and depends on salary, rent paid, and the city of residence. The exempt portion of HRA is calculated as the lowest of the following three values, as per Section 10(13A).
HRA Exemption Calculation Limits
Criteria |
Exemption Limit |
Actual HRA received from employer |
Actual HRA amount received |
Rent paid minus 10% of basic salary (and DA, if applicable) |
Rent paid − 10% of basic salary |
Percentage of basic salary based on city of residence |
50% of basic salary for metro cities
40% of basic salary for non-metro cities |
The lowest value among the three is allowed as HRA tax exemption. Any remaining HRA amount is added to taxable income and taxed as per the applicable slab.
Metro vs Non-Metro Cities for HRA
For HRA calculation purposes:
- Metro cities include Delhi, Mumbai, Kolkata, and Chennai
- All other cities are treated as non-metro
The city classification directly impacts the exemption limit, as metro residents are allowed a higher percentage of their basic salary for HRA exemption.
If rent paid is less than or equal to 10% of basic salary, the exemption under the second condition becomes zero, which significantly reduces or eliminates the HRA tax benefit.
How to Calculate HRA
HRA calculation is done as per the rules specified under Section 10(13A) of the Income Tax Act. The exempt portion of House Rent Allowance is the lowest of three calculated values. This method is commonly referred to as the HRA formula.
The HRA formula considers the following three amounts:
- Actual HRA received from the employer
- Rent paid during the year minus 10% of basic salary (and DA, if applicable)
- 50% of basic salary for metro cities or 40% of basic salary for non-metro cities
The lowest of these three values is allowed as HRA exemption, and the balance becomes taxable.
Step-by-Step HRA Calculation Example
Assume the following details:
- Basic salary: ₹40,000 per month
- HRA received: ₹20,000 per month
- Rent paid: ₹18,000 per month
- City of residence: Delhi (metro)
HRA tax calculation:
- Actual HRA received: ₹20,000
- Rent paid − 10% of basic salary:
₹18,000 − ₹4,000 = ₹14,000 - 50% of basic salary (metro):
50% of ₹40,000 = ₹20,000
The lowest value is ₹14,000, which is allowed as HRA tax exemption per month.
The remaining ₹6,000 (₹20,000 − ₹14,000) becomes taxable.
HRA calculation should always be done using actual salary and rent figures. Incorrect assumptions or missing details can result in wrong exemption claims and potential tax issues.
How to Claim HRA Under Section 10(13A)
HRA can be claimed as a tax exemption under Section 10(13A) of the Income Tax Act by salaried employees who live in rented accommodation and receive HRA as part of their salary. The claim can be made either through the employer during the financial year or directly while filing the income tax return.
HRA can be claimed through the employer if:
- HRA is included in the salary structure
- Rent is paid regularly during the financial year
- Rent receipts and required documents are submitted within the employer’s deadline
In this case, the employer considers the eligible HRA exemption while calculating monthly TDS, resulting in lower tax deduction during the year.
If HRA is not claimed through the employer, it can still be claimed while filing the income tax return. In such cases:
- The full HRA received is initially added to taxable income
- The eligible HRA exemption is claimed separately under Section 10(13A)
- Supporting documents must be retained and produced if requested by the Income Tax Department
It is important to ensure that the rent paid, exemption claimed, and salary details reported in the return are consistent. Any mismatch or incorrect claim may lead to scrutiny or disallowance of the exemption.
Documents Required to Claim HRA
To claim HRA tax exemption under Section 10(13A), proper documentation is essential. The Income Tax Department may disallow the exemption if required documents are missing, incorrect, or inconsistent with the claim made.
The key documents required to claim HRA include:
- Rent receipts issued by the landlord for the relevant financial year
- Rental agreement, if available, especially for long-term or high-value rentals
- Proof of rent payment, such as bank statements or payment confirmations, if requested
- Declaration of rent paid submitted to the employer, where applicable
If the annual rent paid exceeds ₹1 lakh, the PAN of the landlord must be provided. If the landlord does not have a PAN, a written declaration stating the same is required.
It is important that the details in rent receipts match salary records and bank transactions. Any discrepancy in names, rent amount, or rental period may result in rejection of the HRA exemption claim.
Documents should be retained even after filing the return, as they may be required during assessment or verification by tax authorities.
Details Included in HRA Receipts
HRA receipts are a critical document for claiming HRA tax exemption under Section 10(13A). Incorrect or incomplete rent receipts are one of the most common reasons for HRA exemption being disallowed. A valid HRA receipt must clearly establish that rent was paid, to whom it was paid, and for which period.
An HRA receipt should include the following mandatory details:
Receipt Detail |
Description |
Tenant’s name |
Name of the employee paying the rent |
Landlord’s name |
Name of the property owner receiving the rent |
Rental property address |
Complete address of the rented accommodation |
Rent amount |
Monthly rent paid, clearly mentioned |
Rent period |
Month or period for which rent is paid |
Date of payment |
Date on which rent was paid |
Mode of payment |
Cash, bank transfer, cheque, or UPI |
Revenue stamp |
Required for cash rent receipts exceeding ₹5,000 |
Landlord’s signature |
Recommended. Often required by employers and helpful for substantiation |
Landlord’s PAN |
Required if annual rent exceeds ₹1 lakh |
The details on the receipt must be accurate and consistent with salary records and bank statements. Even minor errors such as incorrect spelling of names, mismatched rent amounts, or missing signatures can lead to rejection of the HRA claim.
Conclusion
House Rent Allowance offers meaningful tax savings for salaried individuals, but only when claimed correctly. While HRA calculation and exemption rules are clearly defined under the Income Tax Act, errors in rent receipts and documentation often lead to denied claims. Ensuring that rent is actually paid, receipts contain all mandatory details, and claims align with salary records is essential to avoid tax issues. With accurate records and proper understanding of HRA tax calculation, employees can legitimately reduce their taxable income and stay compliant.
FAQs
1. What is the full form of HRA?
HRA stands for House Rent Allowance. It is a salary component provided to employees to cover rental housing expenses.
2. How is HRA tax exemption calculated?
HRA exemption is calculated as the lowest of actual HRA received, rent paid minus 10% of basic salary, or 50% of basic salary for metro cities and 40% for non-metro cities.
3. Can I claim HRA if I live in my own house?
No. HRA exemption can only be claimed if you live in a rented accommodation and pay rent.
4. Is landlord PAN mandatory for claiming HRA?
Yes, landlord PAN is mandatory if annual rent exceeds ₹1 lakh. If PAN is not available, a declaration from the landlord is required.
5. Can self-employed individuals claim HRA?
No. Self-employed individuals do not receive HRA but may claim rent paid under Section 80GG, subject to conditions.
6. Is HRA included in CTC?
Yes. HRA is included in the Cost to Company, but tax exemption depends on eligibility and proper documentation.
7. What happens if I do not submit rent receipts?
If rent receipts are not submitted or are incorrect, the entire HRA amount becomes taxable.
8. Can I claim HRA in the new tax regime?
No. House Rent Allowance (HRA) exemption under Section 10(13A) is not available if you opt for the new tax regime under Section 115BAC. The new tax regime offers lower tax slab rates but removes most exemptions and deductions, including HRA.
If you want to claim an HRA exemption for rent paid, you must choose the old tax regime while filing your income tax return. Salaried employees should carefully compare both regimes before selecting one, based on their rent, deductions, and overall tax liability.
9. What is “salary” for HRA calculation?
For HRA calculation purposes, “salary” has a specific and limited meaning under the Income Tax Act. It includes only the following components:
- Basic salary
- Dearness Allowance (DA), but only if DA forms part of retirement benefits
Other components such as bonuses, commissions, overtime pay, special allowance, or employer contributions are not included in salary for HRA calculation.
This definition is clarified by the Income Tax India, and it directly impacts the HRA exemption formula, especially the calculation of:
- Rent paid minus 10% of salary
- 50% or 40% of salary based on city classification
Using an incorrect salary base is a common reason for wrong HRA claims.
10. Is a revenue stamp required on rent receipts?
Yes, a revenue stamp is required on rent receipts if the rent is paid in cash and the amount exceeds ₹5,000 per receipt. The stamp should be affixed and signed by the landlord across the stamp to validate the receipt.
Key points to remember:
- Required only for cash payments
- Not required for rent paid via bank transfer, cheque, or UPI
- Employers may insist on stamped receipts for internal verification
- Absence of a revenue stamp on applicable cash receipts can lead to rejection of HRA claims
