Getting tax benefits on rent? Most salaried employees claim HRA exemption wrong, says CA

If you're a salaried employee receiving House Rent Allowance (HRA) and living in rented accommodation, you're likely eligible for a tax break under Section 10(13A) of the Income Tax Act. But Chartered Accountant Nitin Kaushik warns: “Most people get it wrong—not because they aren't eligible, but because they don’t understand how the exemption is actually calculated.” 

HRA exemption under Section 10(13A) of the Income Tax Act lets salaried individuals claim tax relief if they receive house rent allowance and live in rented accommodation. The exempt amount is the least of three: the actual HRA received, 50% of basic salary for metro residents (or 40% for non-metros), and rent paid minus 10% of basic salary. This calculation helps taxpayers reduce their taxable income based on actual rent expenses and city of residence.

How to claim HRA exemption 

HRA is one of the most commonly claimed tax exemptions by salaried employees—but also one of the most misunderstood. Just because you receive HRA in your salary slip doesn’t mean you get to deduct the whole amount from your taxable income. There’s a set formula, and missing the fine print can cost you. 

To claim House Rent Allowance (HRA) exemption, three conditions must be met:

You must be a salaried employee receiving HRA as part of your pay.

You should live in rented accommodation.

You must opt for the old tax regime, as HRA exemption is not available under the new one.

Understanding the HRA formula

Contrary to common belief, you don’t get exemption on the full HRA amount. The exempt portion is the lowest of the following:

Actual HRA received

Rent paid minus 10% of salary

50% of salary (if living in a metro city: Delhi, Mumbai, Chennai, Kolkata) or 40% (non-metros)

Note: "Salary" for HRA doesn’t mean your full CTC. It includes:

Basic salary

Dearness allowance (if it counts toward retirement benefits)

Commission (if it’s a percentage of turnover)

Example: How the exemption works

Let’s say an employee lives in Mumbai and has the following annual income details:

Basic Salary: ₹40,000/month → ₹4,80,000/year

HRA Received: ₹15,000/month → ₹1,80,000/year

Rent Paid: ₹18,000/month → ₹2,16,000/year

Now apply the formula:

Actual HRA received = ₹1,80,000

Rent paid – 10% of salary = ₹2,16,000 – ₹48,000 = ₹1,68,000

50% of salary (metro) = ₹2,40,000

Exempt HRA = Lowest of the above = ₹1,68,000 Taxable HRA = ₹1,80,000 – ₹1,68,000 = ₹12,000

> Submit rent receipts to your employer. > If your annual rent exceeds ₹1 lakh, your landlord’s PAN is mandatory. > Paying rent to parents is allowed — but ensure actual payment and documentation. > Even a high salary won’t help if rent outflow is low — the exemption depends on rent paid.

When you can’t claim HRA > You live in your own house. > You’ve chosen the new tax regime. > Your salary package doesn’t include HRA.

Avoid mistakes — or risk scrutiny Many employees lose out on HRA benefits due to common mistakes: reporting incorrect rent amounts, including ineligible salary components, or failing to keep proofs.

CA Nitin Kaushik warns: “HRA can help you save a decent chunk on taxes—but only if you know how to claim it right.”