What is HRA Exemption?
House Rent Allowance (HRA) is a common component of a salaried employee’s payslip. If you live in a rented accommodation, you can claim a tax exemption on your HRA under Section 10(13A) of the Income Tax Act. This directly reduces your taxable income, saving you money.
The Exemption Rule
The Income Tax Department allows you to claim an exemption equal to the lowest of the following three amounts:
- The actual HRA received from your employer.
- Actual rent paid minus 10% of your Basic Salary.
- 50% of Basic Salary (if you live in a Metro city) OR 40% of Basic Salary (for Non-Metro cities).
New Tax Regime Limitation
The HRA exemption is only available under the Old Tax Regime. If you have opted for the New Tax Regime, you cannot claim any HRA deductions, and your entire HRA component will be fully taxable.