Tax, GST and company law glossary

HRA (House Rent Allowance)

A salary allowance for rent, part of which is tax-free under the old regime.

In short

The exempt amount is the lowest of actual HRA, 50% or 40% of salary depending on the city, and rent paid minus 10% of salary.

What it means

House Rent Allowance (HRA) is a part of salary that employers pay to help employees meet rent. If you live in a rented home and pay rent, part of the HRA can be exempt from tax under the old tax regime. Under the new regime, HRA is fully taxable.

How it works

The exempt amount is the lowest of these three:

  • Actual HRA received.

  • 50% of salary if you live in Mumbai, Delhi, Kolkata, Chennai, Bengaluru, Hyderabad, Pune or Ahmedabad; 40% of salary in any other city. The four newer cities were added under the Income-tax Rules, 2026, from 1 April 2026.

  • Rent paid minus 10% of salary.

Here “salary” means basic pay plus dearness allowance (where it counts for retirement benefits) plus commission based on a fixed percentage of turnover.

  • If annual rent is more than ₹1,00,000, the landlord’s PAN must be given to the employer.

  • The rules now also require you to disclose your relationship with the landlord, for example if you pay rent to a parent.

  • You claim it through your employer by submitting rent receipts with Form 124 (earlier Form 12BB), or in your return.

Example

Neha works in Pune and chooses the old regime for tax year 2026-27.

Basic pay plus DA: ₹50,000 a month = ₹6,00,000 a year

HRA received: ₹25,000 a month = ₹3,00,000 a year

Rent paid: ₹22,000 a month = ₹2,64,000 a year

(a) Actual HRA = ₹3,00,000

(b) 50% of salary (Pune is now a 50% city) = ₹3,00,000

(c) Rent minus 10% of salary = ₹2,64,000 - ₹60,000 = ₹2,04,000

Exempt HRA = lowest = ₹2,04,000

Taxable HRA = ₹3,00,000 - ₹2,04,000 = ₹96,000

Since her rent is above ₹1,00,000 a year, she gives her landlord’s PAN to her employer.

Key points to remember

  • HRA exemption is available only under the old regime; compare both regimes before choosing.

  • You cannot claim HRA for a house you own and live in.

  • Rent paid to parents is allowed if it is genuine: pay through the bank, keep a rent agreement, and your parent should show the rent as income.

  • Fake rent receipts are a common reason for notices, as the department matches landlord PANs and AIS data.

  • If your employer does not pay HRA, you may be able to claim a limited deduction under Section 80GG (old Act section) instead.

Income Tax

Try the HRA Calculator →All glossary terms

Need help with this?

Finaccle’s chartered accountants handle income tax, GST, ROC compliance and business setup for 2,000+ businesses. Use the WhatsApp or Book a call button to speak to the team, or browse our guides by topic in the Knowledge Centre.