HRA Exemption 2025: Complete Guide to House Rent Allowance for Salaried Employees

HRA Exemption 2025: For most salaried employees, rent forms a major part of monthly expenses. To provide relief, the Income-tax Act, 1961 allows partial exemption of House Rent Allowance (HRA) under Section 10(13A).

HRA is an essential component of salary that helps employees reduce tax liability while supporting their accommodation needs. With the right understanding and documentation, employees can maximize HRA benefits effectively.

This guide explains the concept, calculation method, conditions, and latest updates for FY 2024–25, making it easy for every salaried taxpayer to understand.

💡 What is HRA?

House Rent Allowance (HRA) HRA Exemption 2025 is an allowance paid by an employer to an employee to meet the cost of rented accommodation.
It forms part of the salary package and is taxable under “Salaries” unless exempt under Section 10(13A).

The exemption is governed by Rule 2A of the Income-tax Rules, 1962, which defines the amount eligible for exemption based on:

• Basic salary and dearness allowance,
• Rent paid, and
• City of residence.

✅ Conditions for Claiming HRA Exemption

To claim HRA exemption, the following conditions must be satisfied:

1. HRA must be received as part of salary.
2. The employee must actually pay rent for a residential accommodation.
3. The house should not be owned by the employee.
4. Proof of rent payment (rent receipts or rent agreement) must be available.

💬 Note: If the annual rent exceeds ₹1,00,000, the employee must provide the landlord’s PAN to the employer for verification.

🧮 How to Compute HRA Exemption

Under Section 10(13A) read with Rule 2A, the exempt amount is the least of the following three:

1. Actual HRA received.
2. Rent paid minus 10% of salary (Basic + DA forming part of retirement benefits).
3. 50% of salary (for metro cities: Delhi, Mumbai, Kolkata, Chennai) or 40% for non-metro cities.

Only the lowest of these three amounts is exempt from tax. The balance is taxable as part of salary.

👉 You can use the official Income Tax Department HRA Calculator to compute your exemption instantly.

📊 Example: HRA Calculation

Example:

Computation:

• Rent paid – 10% of salary = 20,000 – (10% of 65,000) = 13,500
• 50% of salary = 32,500
• Actual HRA received = 25,000

✅ Exempt HRA = ₹13,500 per month
💰 Taxable HRA = ₹25,000 – ₹13,500 = ₹11,500 per month

📌 Key Points for Salaried Employees

• HRA exemption is available only if you live in rented accommodation.
• You can pay rent to your parents and claim exemption (ensure valid rent receipts and bank transactions).
• No exemption is allowed if you live in a self-owned property.
• Under the new tax regime (Section 115BAC), HRA exemption is not available.
• Submit rent receipts or rent agreements to your employer annually to ensure correct TDS.

⚖️ HRA Under the New Tax Regime (Section 115BAC)

Under the new tax regime, introduced by the Finance Act, 2020 and updated in Finance Act, 2025, most exemptions and deductions (including HRA) are disallowed.

Hence:

• Employees with higher HRA exemptions may prefer the old regime.
• Those with minimal exemptions may find the new regime’s lower tax rates beneficial.

✅ Always compare both regimes before finalizing your choice each financial year.

🧾 Documentation Required

To claim HRA exemption, employees should maintain:

• Rent receipts or rent agreement.
• Landlord’s PAN (if annual rent > ₹1 lakh).
• Proof of rent payment (bank transfer, cheque, or UPI).

These documents may be requested by employers or the Income Tax Department during verification.

⚠️ Common Mistakes to Avoid

1. Claiming HRA for a self-owned house.
2. Failing to submit rent receipts to the employer.
3. Not providing the landlord’s PAN (if required).
4. Assuming HRA is allowed under the new regime.
5. Using annual rent instead of monthly computation.

Proper documentation ensures you don’t lose legitimate tax benefits.