House Rent Allowance (HRA) Exemption 2026, Calculation & New Rules

House Rent Allowance (HRA) is a common salary component that helps taxpayers reduce their taxable income when they live in rented accommodation. This guide explains what HRA is, who can claim the exemption, how the exemption is computed under the law, and what changes matter for taxpayers evaluating the old and new tax regimes. You will learn the components used in the HRA calculation, the documentation and compliance steps to claim the exemption, and the alternative deduction available to those who do not receive HRA in their salary. The practical focus is on how to compute the exempt portion of HRA using the statutory tests, what to do if you pay rent to family members, and when Section 80GG applies for self-employed or salaried persons without HRA. By the end of this guide you should be able to determine whether you can claim HRA, estimate the exempt amount using the three statutory conditions, and follow the correct procedural steps to show the exemption in your income tax return.

What is HRA?

House Rent Allowance (HRA) is a component of salary that provides relief from income tax when an employee lives in rented accommodation. The legal basis for HRA exemption sits in the Income Tax Act under Section 10(13A), which lays down how much of the allowance is exempt from tax.

HRA is calculated by comparing three amounts and taking the least of them. The calculation relies on the definition of salary for this purpose (Basic + Dearness Allowance + commission as a percentage of turnover) and on whether the taxpayer lives in a metro or other city because the percentage threshold differs.

HRA Eligibility: Who Can Claim HRA Exemption?

HRA exemption is available to salaried employees who receive an HRA component as part of their salary package and who actually pay rent for accommodation. It is not available to persons who do not receive HRA in their salary.

Persons who opt for the new tax regime are not eligible to claim HRA exemption, because HRA is an exemption allowed only under the old tax regime. Self-employed taxpayers or those without an HRA component can explore Section 80GG instead, which is a separate rent-related deduction with its own conditions and limits.

How is HRA Exemption Calculated?

HRA Exemption Under New Tax Rules 2026

The HRA exemption is available only under the old tax regime. If you opt for the new tax regime, you are not eligible to claim HRA exemption because the new regime restricts the use of such exemptions.

Choosing between old and new regimes should factor in whether you receive HRA and other deductions. If you have significant rent outflow and HRA exemption under the old regime, that may affect which regime is more beneficial for your overall tax liability.

HRA Exemption Calculation (Practical Notes)

To compute HRA exemption you must calculate all three amounts described in the statute and take the least. Practically this means gathering: annual HRA paid by the employer, total annual rent paid, and the salary figure as defined for HRA (Basic + DA + applicable commission).

Because one of the tests uses a percentage that differs by city category (50% for metro, 40% for other cities), the city of residence affects the exempt amount. Also, the rent test requires subtracting 10% of salary from the annual rent paid and comparing that result with the other two measures.

Documents Required to Claim HRA Exemption

You do not need to submit all supporting documents with your income tax return, but you should provide proofs to your employer (so they can adjust TDS) and retain the documents to respond to any department queries. Typical proofs include rent receipts, the rental agreement, bank payment proofs for rent, and evidence showing HRA in the salary structure.

If rent is paid above specified monetary thresholds requiring landlord PAN in other contexts, you should keep that documentation too. Maintain these records for the relevant assessment year in case the tax department requests substantiation of the claimed exemption.

How to Claim HRA Exemption?

Special Cases: Paying Rent to Family Members

Paying rent to parents can still allow you to claim HRA, but this is subject to conditions, the payment must be genuine and supported by adequate documentation so that the allowance qualifies for exemption. Evidence of rent paid and a valid rental arrangement will be important to substantiate the claim.

Conversely, payments to certain close relatives without a genuine rental arrangement may attract scrutiny and could be disallowed if the arrangement is not supported by documentation or appears contrived for tax benefit.

House Rent Deduction for Self-Employed Taxpayers: Section 80GG

Taxpayers who are self-employed or those who do not receive HRA as part of salary can seek a rent-related deduction under Section 80GG. This is a separate provision specifically for those without HRA in their pay structure.

The allowable deduction under Section 80GG is the least of three amounts: (a) Rs.5,000 per month (Rs.60,000 per year); (b) 25% of total income before allowing the deduction under this section; and (c) actual rent paid less 10% of total income before allowing the deduction. Claimants must also meet the other statutory conditions for Section 80GG to apply.

HRA can substantially reduce taxable salary for employees who rent accommodation, but the exemption is governed by precise statutory tests and is available only under the old tax regime. Compute the three statutory amounts carefully, submit and retain supporting documents, and if you don’t receive HRA consider Section 80GG. Always report the exempt amount correctly in your ITR filed within the due date so you can claim the benefit and be prepared to substantiate it if needed.