HRA Exemption Calculation — Section 10(13A) with Worked Examples
Detailed guide to calculating HRA exemption under Section 10(13A) with metro/non-metro examples, landlord PAN rules, rent-to-parents strategy, and documents required.
Harun Raaj
Chartered Accountant · Harun Raaj & Associates
What Is HRA Exemption?
House Rent Allowance (HRA) received from an employer is partly exempt under Section 10(13A) of the Income Tax Act, 1961 read with Rule 2A of the Income Tax Rules, 1962.
HRA exemption is available only under the old tax regime. Under the new regime (Section 115BAC), HRA is fully taxable.
The Three-Way Test — Least of Three is Exempt
CBDT Circular No. 8/2013: "Salary" means basic + DA only where DA forms part of retirement benefits. Do not include special allowances or HRA itself.
Worked Example — Metro (Mumbai)
Annual figures: Basic + DA = ₹7,80,000; HRA received = ₹3,00,000; Rent paid = ₹2,64,000
Three tests: (1) ₹3,00,000 | (2) 2,64,000 – 78,000 = ₹1,86,000 | (3) 50% × 7,80,000 = ₹3,90,000
Exempt HRA = ₹1,86,000 (least). Taxable HRA = ₹1,14,000.
Worked Example — Non-Metro (Pune)
Annual figures: Basic = ₹4,80,000; HRA received = ₹1,80,000; Rent paid = ₹1,68,000
Three tests: (1) ₹1,80,000 | (2) 1,68,000 – 48,000 = ₹1,20,000 | (3) 40% × 4,80,000 = ₹1,92,000
Exempt HRA = ₹1,20,000. Taxable HRA = ₹60,000.
Key Rules
Landlord's PAN (Rule 26C): If annual rent exceeds ₹1,00,000, submit the landlord's PAN to your employer.
Rent to spouse — not allowed: CBDT position and tribunal rulings deny HRA exemption on rent paid to spouse.
Rent to parents — permitted: Paying rent to parents via bank transfer is a legitimate tax-saving strategy. Parents must declare the rental income in their own ITR.
Own house in same city: HRA exemption not available even if you choose to live elsewhere in the same city.
Documents to Maintain
- Rent receipts (signed by landlord; revenue stamp if > ₹5,000/month)
- Registered or notarised rent agreement
- Landlord's PAN if annual rent > ₹1 lakh
- Bank statements showing rent payments
HRA for Self-Employed
If you do not receive HRA from an employer, use Section 80GG (deduction up to ₹60,000 per year for rent paid where no HRA is received), subject to conditions.
Use the HRA Exemption Calculator for instant computation.
See Also
Frequently Asked Questions
How to calculate HRA exemption under Section 10(13A) with three-way test?+
HRA exemption is the least of three amounts: (1) Actual HRA received from employer, (2) Rent paid minus 10% of salary (basic + DA), and (3) 50% of salary in metro cities (Delhi, Mumbai, Kolkata, Chennai) or 40% in non-metro cities. Per Section 10(13A) read with Rule 2A of the Income Tax Rules, 1962, the exemption equals the lowest of these three amounts. The Mumbai example shows: exempt HRA = ₹1,86,000 (least of ₹3,00,000, ₹1,86,000, and ₹3,90,000).
Is HRA exemption available under new tax regime Section 115BAC?+
No. HRA exemption under Section 10(13A) is available only under the old tax regime. Under the new regime (Section 115BAC), HRA is fully taxable and no exemption is allowed.
What salary components are included in HRA calculation under CBDT Circular 8/2013?+
Per CBDT Circular No. 8/2013, 'salary' for HRA calculation means basic pay plus Dearness Allowance (DA) only where DA forms part of retirement benefits. Special allowances, HRA itself, and other allowances must not be included in the salary figure used for the three-way test.
Can I claim HRA exemption if I pay rent to my spouse?+
No. The CBDT position and tribunal rulings deny HRA exemption on rent paid to a spouse. This is not a legitimate arrangement under Section 10(13A).
Is paying rent to parents allowed for HRA exemption purposes?+
Yes. Per the article, paying rent to parents via bank transfer is a legitimate tax-saving strategy under Section 10(13A). However, parents must declare the rental income they receive in their own Income Tax Return.
What documents are required to claim HRA exemption and prove rent payment?+
Rule 26C and general documentation requirements mandate: (1) Rent receipts signed by the landlord with revenue stamp if monthly rent exceeds ₹5,000, (2) Registered or notarised rent agreement, (3) Landlord's PAN if annual rent exceeds ₹1 lakh, and (4) Bank statements showing rent payments to support the claim.
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