For salaried Indians living in rented homes, House Rent Allowance is often the single largest tax-saving lever in the payslip — worth tens of thousands a year when claimed correctly. Yet HRA exemption is also among the most misunderstood: it works only under the old tax regime, the exempt amount follows a specific least-of-three formula, and the tax department has grown strict about proof. Here is how HRA exemption is calculated, what documents you need, and the traps to avoid.

How the exemption is calculated

The exempt portion of HRA is the least of three numbers: the actual HRA received from your employer, 50 per cent of basic salary plus dearness allowance if you live in a metro city (Mumbai, Delhi, Chennai, Kolkata) or 40 per cent for non-metros, and rent paid minus 10 per cent of basic plus DA. An example makes it concrete: with a basic salary of 60,000 rupees a month in Mumbai, HRA of 30,000 and rent of 25,000, the three figures are 30,000, 30,000 (50 per cent of basic) and 19,000 (rent minus 10 per cent of basic) — so 19,000 a month is exempt and the rest is taxable. Note what the formula rewards: higher rent relative to salary increases the exemption, which is why the benefit is most valuable for those paying substantial rents in expensive cities.

Claiming it: documents and process

Claim HRA through your employer’s investment declaration at the start of the financial year so that monthly TDS reflects it — you can also claim it directly when filing your return if you missed the declaration. Your employer will ask for rent receipts and, crucially, the landlord’s PAN if your annual rent exceeds 1 lakh rupees; without it, the claim can be disallowed. Keep a registered rent agreement, monthly receipts or bank transfer records, and the landlord’s PAN on file — the department increasingly cross-verifies high HRA claims against landlords’ reported rental income. If you pay rent to parents and live in their house, the exemption is legally available provided the rent is genuine, documented and the parent declares it as income — but arrangements that exist only on paper invite disallowance with interest and penalty.

The new-regime problem

The single most important HRA fact in 2026: the exemption does not exist in the new tax regime. Salaried taxpayers who moved to the new regime for its lower slabs and 12-lakh rebate have silently forfeited HRA exemption along with 80C and 80D. For someone paying 30,000 rupees a month in rent in a metro, that forfeiture can be worth 50,000 to 80,000 rupees of lost exemption a year — often enough to flip the old-versus-new calculation back in the old regime’s favour. This is why the annual regime comparison must include HRA explicitly: spreadsheet both options with your actual rent before deciding.

• Formula: exempt = least of (actual HRA, 50%/40% of basic+DA, rent − 10% of basic+DA).
• Old regime only: no HRA exemption under the new tax regime.
• Landlord PAN: mandatory if annual rent exceeds 1 lakh rupees.
• Proof: rent agreement, receipts or bank transfers — keep the paper trail.

Special situations

Own a house in the same city where you rent? The exemption is still available if you can show the rented accommodation is genuinely needed — say, your own house is too far from work or occupied. Paying rent while also claiming home loan interest on a let-out property follows its own set of rules worth professional advice. And if you change jobs mid-year, consolidate HRA across employers when filing — each employer computes only on the salary it paid, but your annual exemption is based on the year’s totals.

FAQs

Can I claim HRA if I live with my parents and pay them rent? Yes, if the arrangement is genuine — documented rent, actual payment, landlord PAN where applicable, and the parent declares the rental income.

What if my landlord refuses to share PAN? You cannot claim the exemption for rent above 1 lakh a year without it; consider this before signing the lease.

Does HRA exemption need rent receipts every month? Employers typically ask for receipts or a consolidated declaration; keep monthly proof regardless — bank transfers are the cleanest record.

HRA exemption is straightforward arithmetic wrapped in documentation discipline. Run the least-of-three formula, keep the paper trail immaculate, remember it lives only in the old regime — and one of your payslip’s biggest tax savers will work exactly as designed.

Compiled by the Khabar 24h Editorial Desk from publicly available sources.