HRA Exemption Rules: How Much Tax You Can Actually Save
The three HRA formulas, when rent receipts need PAN, and the parents-rent strategy that's still legal.
HRA exemption is one of the largest tax breaks available to salaried Indians — but only in the old tax regime. The exempt amount is the lowest of three numbers; people often claim the wrong one.
The Three HRA Formulas
You can claim the lowest of these three. The four metro cities are Delhi, Mumbai, Kolkata, Chennai. Bengaluru, Hyderabad, Pune count as non-metro for HRA purposes.
- Actual HRA received from employer
- Rent paid minus 10% of basic salary
- 50% of basic (metro) or 40% (non-metro)
Compute exempt HRA: HRA Calculator → https://calculatordesk.in/hra-calculator
Documentation You Need
- Rent receipts every month
- Landlord's PAN if annual rent > ₹1 lakh
- Rent agreement
- Rent paid via bank transfer is strongly preferred over cash
Can You Pay Rent to Parents?
Yes — and it is fully legal. Conditions: the property must be owned by your parent(s), you must actually transfer rent to their bank account every month, and your parent declares the rent as income (taxable to them at slab rate, with 30% standard deduction on rental income). Often the family's net tax falls because the parent is in a lower slab.
Frequently Asked Questions
Can I claim HRA and home loan together?
Yes, if you genuinely live in a rented house and your owned property is in another city (or let out). Don't claim both for the same address — that draws scrutiny.
Is HRA available in the new tax regime?
No. HRA exemption is allowed only under the old regime. If you opt for the new regime, HRA becomes fully taxable as part of salary.
What if my employer doesn't give HRA as a salary component?
Then HRA exemption doesn't apply. But you can still claim deduction for rent paid under Section 80GG (max ₹60,000/year, with conditions) under the old regime.