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Eight Lesser-Known Facts About HRA Tax Exemption Rules And Its Tax Benefits

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8 Lesser-Known Facts About HRA Tax Exemption Rules

If you are a salaried employee obsessed with savings near the end of the fiscal year, you have come to the right place. Often, HRA is a significant portion of your net salary, but due to a lack of awareness, you claim the incorrect HRA tax exemption, resulting in a financial loss.

Whatever the case, we’ve addressed all of your concerns in this guide to ensure that you never have any problems with HRA tax exemption after reading this.

An Overview of HRA (House Rent Allowance)

House Rent Allowance (HRA) is a component of employees’ salary working in the organized sector. HRA is paid by the employer towards the payment of rent. HRA tax exemption is allowed as a deduction from the taxable salary under Section 10(13A). However, this benefit is available only for salaried individuals who opt for the old income tax slabs.

HRA tax deduction is calculated as the least of the following amounts-

  • Actual HRA received
  • 50% of the (basic salary + DA) for those living in Metro cities or
    40% of the (basic salary + DA) for those living in non-metro cities
  • Actual rent paid should be less than 10% of the basic salary + DA.

Let us understand this with a real-world example. Assume you receive a compensation (basic + DA) of Rs. 25,000/-, with an HRA component of Rs. 8000. You live in a metropolis and pay a monthly rent of Rs. 10,000/-. In this case, we’ve assumed you’re eligible for the 10% tax bracket.

 Annual salary (basic salary + DA)Rs. 3,00,000/-
(A) Actual HRA Received (Annual)Rs. 96,000/-
(B) 50% of the Salary(Annual)Rs. 1,50,000/-
(C) Excess of rent paid annually over 10% of annual salaryRs. [1,20,000 –  {10% * 3,00,000 }] Rs. 90,000 /-
Eligible HRA Tax Exemption (Min. of A, B, and C)Rs. 90,000/-

This means that out of the Rs. 96,000/- received as HRA, you can claim an HRA tax exemption of Rs. 90,000/- and only the remaining Rs. 6,000/- is added to your income, on which a tax of Rs. 600 (assuming a 10% tax slab) is payable.

Landlord’s PAN number required

According to the latest income tax news, the government has mandated that the landlord’s PAN Card be included on the claim form if the total annual rent exceeds Rs. 1 lac.

If your annual rent exceeds Rs. 1 Lac, you must quote your landlord’s PAN or provide a declaration to your company mentioning your landlord’s name and complete address to claim HRA tax exemption. To substantiate your claims, you can submit rent receipts duly authenticated by the landlord or a copy of your rental agreement.

Claim HRA exemption jointly or in shared accommodation.

HRA tax exemption can be claimed by both husband and wife and by more people living in shared housing as tenants or paying guests. Isn’t that remarkable? Couples can claim the HRA tax exemption jointly if the lease agreement names both husband and wife as tenants and clearly states their proportionate share. If more than one person is co-living or sharing a rented space, the rental agreement must clearly state their proportionate share of the rent.

Take HRA tax exemption and home loan tax benefits.

Many taxpayers need clarification about whether they can simultaneously claim HRA tax exemption and Home Loan benefits. Let us make this easier for you by considering various scenarios-

ScenariosCan HRA tax exemption and Home Loan Rebate be availed simultaneously?
You bought a house with a home loan but live in rented housing in another city due to work obligations.Yes
You used a Home Loan to buy a house, but you live in a rented apartment in the same city because your job/business/profession/child’s school is too far from your own house.Yes, Conditions-    -you may have to satisfy the competent authority about the genuineness of your case   -the property should not be rented at any time during the year.    
You have purchased a house under construction from loan finance and live on rent elsewhere in the same/different city.Yes, Conditions-   You must show the rent receipts or the rental agreements if asked during scrutiny.  

Rent can be exempt without HRA

You are probably wondering how to claim an HRA tax exemption if HRA is separate from your salary income. Don’t worry; we’ve covered this too. We understand that some small or medium-sized businesses pay wages in a lump sum with no breakup. HRA must be part of your salary to qualify for tax exemption, but Section 80 GG of the Income Tax Act of 1961 allows even self-employed individuals to deduct house rent paid.

You must not have received HRA during any part of the fiscal year to qualify for the HRA tax exemption under Section 80 GG. In addition, to claim tax exemption under this section, you must fill out an additional form 10 BA confirming that all of the conditions of the preceding section have been fully met.

How to Claim an HRA tax exemption if you missed the deadline?

If you did not submit your HRA tax exemption claim documents to your employer on time, you could still claim them when you file your ITR returns. If you miss the ITR filing date, you can file a revised return to correct the error before 31 December of the assessment year or the completion of the assessment, whichever comes first.

How to claim an HRA tax exemption if the landlord is NRI?

Non-Resident Indians (NRIs) buy properties in India and rent them out for a profit. So, the obvious question is whether you can still claim an HRA tax exemption if your landlord is an NRI. But, don’t worry, we have a solution for that as well.

If your landlord is an NRI, you must deduct 31.2% TDS before crediting the monthly rent to your landlord’s NRO account. To do so, you must first obtain a Tax Deduction and Collection Account Number (TAN), deposit it with the government, and send a copy to your NRI landlord. TDS must be deposited by the seventh of the following month every time.

It is crucial to remember that the tenant is responsible for paying taxes. Failure to do so results in a penalty equal to the TDS, and failure to deposit TDS results in imprisonment ranging from three months to seven years.

TDS norms when rent payment exceeds Rs 50,000 or more per month

You must have come across TDS being deducted for multiple transactions like the sale of property, bank deposits, or your salary. But do you know about the applicable TDS norms when your monthly rent exceeds Rs. 50,000/-? If not, worry not; we are here to make things simpler for you.

If you pay Rs. 50,000 or more in monthly rent, you must deduct TDS at the rate of 5% before actually paying it to the landlord. After deducting the TDS amount, the residual amount may be credited to the landlord’s account.

Can you take an HRA tax exemption if your parents are your landlord?

Yes, if you pay rent to your parents and provide sufficient evidence, you can claim an HRA tax exemption. To avail of the benefit, you must give duly authenticated rent receipts and a copy of the lease agreement. However, your parents’ rent will be taxable, but they can claim a standard deduction of up to 30% on their rental income.


Now that we have revealed the secret sauce for HRA tax exemption make sure you follow these requirements. Always submit the entire set of documents to avoid rejection by the income tax authorities, which could lead to trouble. Our comprehensive guide will assist you in lowering your taxable income and filling your pockets closer to the end of the financial year.


What happens if TDS on rent is not deducted?

If you fail to deduct TDS before paying your landlord’s rent, you will be charged an interest rate of 1% per month from the month TDS on rent is applicable until the month it is debited. If you deducted but could not deposit with the government, an interest rate of 1.5% is payable.

Can I claim HRA without a rent receipt or a rent agreement?

Yes, you can claim an HRA tax exemption without rent receipts or a rent agreement if your HRA is up to Rs. 3000 per month.

Can the husband pay rent to the wife and claim HRA tax exemption?

No, if a husband pays rent to his wife or inter-alia, this case is not admissible under claiming tax exemption. 

Read more:  How Long-term investing helps create life-changing wealth – TOI

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