HRA Exemption: Section 10(13A) Calculation with Worked Examples (2025)
House Rent Allowance exemption is the most valuable tax-saver for rent-paying salaried employees in India. The formula involves three limits — and only the lowest one counts.
What is HRA Exemption?
Under Section 10(13A) read with Rule 2A of the Income Tax Act, a portion of HRA received from an employer is exempt from income tax if you pay rent for your accommodation. This exemption is only available under the old tax regime — new regime taxpayers pay full tax on HRA received.
The Three-Limit Formula
Worked Example — Bangalore Employee (Non-Metro)
| Item | Amount |
|---|---|
| Basic Salary | Free |
| HRA Received | Free |
| Rent Paid | Free |
| Limit 1: Actual HRA received | ₹20,000 |
| Limit 2: 40% of Basic (non-metro) | ₹20,000 |
| Limit 3: Rent − 10% of Basic | ₹22,000 − ₹5,000 = ₹17,000 |
| Exempt HRA (minimum of three) | ₹17,000 |
| Taxable HRA | Free |
Documents Required for HRA Exemption
- Rent receipts — signed by landlord, with address, amount, and period
- Rental agreement / lease deed — strongly recommended
- Landlord’s PAN — mandatory if annual rent exceeds ₹1,00,000
- Form 12BB — submitted to employer with rent details
Can I Pay Rent to My Parents and Claim HRA?
Yes, provided: (a) the property is owned by your parent(s), (b) rent is actually transferred to their bank account, and (c) a rental agreement exists. Your parents must declare the rental income in their ITR.
HRA Exemption Without a Separate HRA Component
If you don’t receive a separate HRA component, claim deduction under Section 80GG — up to ₹5,000/month or 25% of total income, whichever is lower — subject to conditions (you should not own property in the city of employment).
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