HRA Exemption: Calculation, Rent Proof and PAN Rules

Who can claim HRA exemption?

House Rent Allowance is a salary component, while HRA exemption is the tax relief available against that component when the legal conditions are satisfied. You generally need to receive HRA, occupy rented accommodation and actually pay rent. An employee living in their own home without paying rent cannot claim exemption merely because the payslip includes an HRA line. Equally, rent paid does not create HRA exemption if the relevant allowance was never received.

This guide uses section 10(13A) and Rule 2A under the Income-tax Act, 1961 framework for FY 2025-26. The Income-tax Act, 2025 is scheduled to take effect from 1 April 2026, so check current section numbers and official guidance for the year concerned. HRA exemption is generally unavailable under the new regime. Before collecting receipts or calculating the amount, establish which regime you can and intend to use in the return.

What is the HRA exemption formula?

The exemption is the least of three amounts: actual HRA received for the relevant period; actual rent paid minus 10% of eligible salary; and 40% of eligible salary, increased to 50% where the rented home is in Mumbai, Kolkata, Delhi or Chennai. The city test concerns the location of the accommodation, not the employer’s registered office. Other large cities do not qualify for the 50% factor simply because they are commonly called metropolitan areas.

Eligible salary for this calculation generally means basic salary, dearness allowance to the extent it forms part of retirement benefits, and commission based on a fixed percentage of turnover achieved by the employee. It is not gross salary, cost to company or take-home pay. As of FY 2025-26, use this specific definition and confirm the current official guidance. A spreadsheet that includes every allowance in the salary base can materially overstate the exemption.

Need help with this? Read our guide to Income Tax Return Filing (ITR Filing) Online.

How does an HRA calculation work in rupees?

Assume an employee rents a home in Pune, receives eligible salary of ₹6,00,000 for the year, receives HRA of ₹2,40,000 and pays annual rent of ₹2,16,000. Actual HRA is ₹2,40,000. Rent minus 10% of salary is ₹2,16,000 minus ₹60,000, or ₹1,56,000. The non-metro salary limit is 40% of ₹6,00,000, or ₹2,40,000. The least figure is ₹1,56,000, so that is the exemption under these assumptions.

The taxable HRA balance is therefore ₹2,40,000 minus ₹1,56,000, or ₹84,000. The rent payment itself is not deducted again elsewhere merely because it exceeds the exemption. If the same employee moved to a qualifying metro, the 50% salary limit would rise, but the exemption would still be ₹1,56,000 because the rent-minus-salary figure remains the lowest. A higher metro percentage does not guarantee a higher exemption in every case.

What if your rent, salary or city changes?

Calculate HRA for the relevant periods when salary, HRA, rent or accommodation location changes. A single annual shortcut can give the wrong result if you lived rent-free for several months, received HRA only after a transfer, or moved between cities with different percentage limits. Match the rent period with the salary and allowance applicable to that period. Keep an understandable working that explains how the separate results combine into the annual exemption.

Suppose you stayed with family without paying rent from April through June and began renting from July. You should not claim twelve months of rent simply because the annual salary certificate contains twelve months of HRA. Likewise, a December salary increase should not automatically be used as the salary base for earlier months. Use payslips, the rental agreement and payment dates to reconstruct the correct periods before transferring the total into the return.

Which rent receipts and payment records should you keep?

Keep a genuine rental agreement where available, rent receipts identifying the tenant and landlord, the accommodation address, the period covered and the amount paid. Bank transfers provide a useful trail linking the payment to the landlord. If rent is paid in cash, maintain credible contemporaneous receipts and supporting circumstances rather than creating a bundle of documents only after a notice arrives. Evidence must reflect the real arrangement, not merely satisfy a payroll upload checklist.

Payroll may specify a submission timetable and document format for considering HRA during TDS calculation. Missing that internal deadline does not automatically destroy a legally valid return claim, but it can mean higher salary withholding until you file. Keep the proof even though it is not ordinarily attached to the return. Never purchase fabricated receipts or describe a refundable security deposit as rent; both can undermine the calculation and expose the claim to challenge.

When is the landlord PAN required?

As of FY 2025-26, employees must generally report the landlord’s PAN to the employer when annual rent paid exceeds ₹1,00,000. This is a payroll reporting requirement and does not mean that rent of ₹1,00,000 is itself the maximum HRA exemption. If the landlord does not have a PAN, official salary-TDS guidance has contemplated a declaration with the landlord’s name and address. Confirm the current instructions and your actual facts before relying on that route.

Do not invent a PAN, use someone else’s PAN or assume that splitting one rental arrangement into artificial receipts removes the requirement. Ask for the necessary details when signing the agreement rather than at year-end. A landlord’s reluctance to disclose PAN is not proof that your rent is genuine or that the exemption is automatically lost; it is a documentation issue requiring a lawful response. Keep the correspondence and obtain advice if payroll and available evidence conflict.

Can you pay rent to parents or claim a home loan too?

Rent paid to a parent can support HRA exemption where the parent genuinely owns the accommodation, you actually occupy it as a tenant and the payments are real. The arrangement should be documented, and the recipient must consider the rental income under their own tax obligations. A paper-only transfer or a receipt with no underlying payment is not enough. Family relationships do not prohibit a genuine arrangement, but they do not exempt it from scrutiny either.

Owning another house does not automatically prevent HRA exemption for a genuinely rented residence. Home-loan deductions and house-property treatment must be checked separately, including the selected regime, occupancy and statutory limits. You cannot claim rent for living in a house you own merely by paying yourself or moving money between your accounts. Where the facts involve jointly owned property, a spouse or unusual work arrangements, obtain advice rather than relying on a blanket internet statement.

Is rent TDS separate from the landlord PAN rule?

Yes. Reporting landlord PAN to payroll and deducting tax from rent are different obligations with different thresholds. Under section 194-IB, certain individual or HUF tenants outside the specified tax-audit category must examine TDS when monthly rent exceeds ₹50,000. As of FY 2025-26, the rate under that provision is generally 2%, following the reduction effective from 1 October 2024. Check current official instructions, especially where the landlord is non-resident or another TDS provision applies.

A tenant paying ₹60,000 per month may therefore need both HRA documentation for salary tax and separate rent-TDS compliance. The specific timing, payment statement and certificate requirements should be checked rather than assuming ordinary monthly payroll procedures apply. Non-resident landlord payments can fall under a different provision and should not be processed mechanically under section 194-IB. The fact that an employer allowed your HRA claim does not certify that every tenant-side withholding obligation was satisfied.

How do you claim HRA in your return?

Compare the HRA exemption already recorded in Form 16 with your own period-wise calculation. If payroll allowed the correct amount, do not claim it a second time as a separate deduction. If payroll omitted a valid exemption, you can generally report the correct salary exemption in an eligible old-regime return, backed by evidence. Check the prefilled salary schedule carefully because changing the regime can require recalculating several fields, not just switching one exemption on.

If you receive no HRA, section 80GG may offer a separate rent deduction only when its conditions are met; it is not another name for HRA exemption. It involves its own limits, ownership restrictions and declaration requirements, and is generally unavailable under the new regime. Compare the overall tax outcome before choosing the old regime solely for rent relief. Retain the computation, receipts, payment trail and landlord information with your return records.