If you live on rent and get HRA from your employer, you could be saving serious tax in the old regime. Yet HRA is the deduction people get wrong most often. The rule sounds complicated but is actually just three numbers.
The least of three rule
Your exempt HRA is the lowest of these three amounts: one, the actual HRA you received; two, your rent paid minus 10% of basic salary; three, 50% of basic salary if you live in Delhi, Mumbai, Kolkata or Chennai, or 40% anywhere else.
A worked example
Rohan works in Pune. Basic salary Rs 6 lakh a year, HRA received Rs 2.4 lakh, rent paid Rs 3 lakh. The three numbers: actual HRA Rs 2.4 lakh; rent minus 10% of basic is Rs 3 lakh minus Rs 60,000, which is Rs 2.4 lakh; 40% of basic is Rs 2.4 lakh. All three tie at Rs 2.4 lakh, so his entire HRA is exempt. Nice.
What you need to claim it
- ✓Rent receipts or bank transfers showing rent paid
- ✓Your landlord's PAN if annual rent crosses Rs 1 lakh
- ✓A rent agreement helps if the department ever asks
Common questions
Paying rent to your parents? Legal, as long as money actually moves and they show it as income. No HRA in your salary? You may still claim under Section 80GG, up to Rs 60,000 a year. And remember, HRA exemption exists only in the old regime, so compare both regimes before assuming it helps you.
Try the free HRA calculator on Saathi.Tax tools. Enter three numbers and see your exemption instantly.
