House Rent Allowance 2025: Know How to Maximise Your HRA Exemption Under Income Tax Rules

House Rent Allowance is one of the most useful tax-saving components in a salary structure. In 2025, the old tax regime continues to offer HRA benefits, while it is not available in the new regime. This makes it important for taxpayers to review their income, rental expenses, and documentation before filing taxes. Before we get into rules and calculations, remember that the old regime remains relevant for those who want to use deductions such as HRA, 80C, home loan benefits, and other exemptions. The new regime offers lower tax rates but removes most exemptions, including House Rent Allowance.

What is House Rent Allowance (HRA)
House rent allowance is a part of your salary paid by the employer. It is usually paid to let employees meet their rental expenses. While it is taxable, a portion of it can be exempt under Section 10(13A) of the Income Tax Act (but only if you opt for the old tax regime). Under the new regime, the entire allowance becomes taxable, with no exemption allowed.
HRA can be claimed even if you have taken a home loan for a property in another city. Many employees choose to rent in their work city and own a house elsewhere, say by availing of a Bajaj Home Loan. This allows them to simultaneously claim deductions for both HRA and principal amount repaid on home loan, if conditions are met.

Who can claim the house rent allowance exemption

1. Salaried individuals
Salaried employees receiving HRA as part of their CTC can claim the exemption under Section 10(13A). Key points include:
● You must be staying in a rented house.
● Your salary slip must show an HRA component.
● You must submit rent receipts and a rental agreement.
● Only the old tax regime allows HRA benefits.

2. Self-employed individuals
Self-employed taxpayers cannot claim HRA under Section 10(13A). However, they can claim a similar deduction under Section 80GG, provided they:
● Do not receive HRA in any form.
● Live in a rented accommodation.
● Do not own a house in the city where they reside and work.

This ensures that even freelancers, consultants, and business owners can claim rental deductions (though with more restrictions compared to employees).

How the house rent allowance exemption is calculated
Rule 2A defines the formula for calculating the eligible HRA exemption. You can claim the lowest of the following three:
1. Actual HRA received
2. 50% of basic pay if you live in a metro city (Mumbai, Kolkata, Delhi, Chennai) or 40% of basic pay for non-metro cities
3. Rent paid minus 10% of basic pay

This structure ensures that the exemption is linked to actual rental expenses and income level.

Example of HRA exemption calculation
Assume an employee in New Delhi pays Rs. 10,000 per month in rent. Their monthly salary includes a basic pay of Rs. 25,000. Here’s how the exemption is determined:
1. Actual HRA received (assumed): Rs. 1,00,000
2. 50% of basic pay:
a. Basic Pay = Rs. 25,000 × 12 months = Rs. 3,00,000
b. 50% of Rs. 3,00,000 = Rs. 1,50,000
3. Rent paid minus 10% of basic pay:
a. Rs. 1,20,000 – Rs. 30,000 (10% x Rs. 3,00,000) = Rs. 90,000
The lowest of the three is Rs. 90,000, which becomes the exempt amount. The remaining HRA becomes taxable under the old tax regime. Under the new regime, the full Rs. 1,00,000 becomes taxable.

Documents required to claim house rent allowance
To ensure your exemption is accepted by your employer and the Income Tax Department, maintain the following:
● Rent receipts
● Rental agreement
● Bank proof of rent payment
● Salary slip showing HRA
● Form 12BB for investment and exemption declaration
● Landlord’s PAN if annual rent exceeds Rs. 1 lakh
Please note that if the landlord does not have a PAN, a signed declaration is necessary.

HRA for people paying rent to family members
You are allowed to pay rent to your parents and claim HRA exemption, but:
● There must be a valid rental agreement.
● Actual rent must be paid via bank transfer.
● Parents must report the rent as “income from house property.”

However, paying rent to your spouse is not permissible for HRA claims.

How to claim HRA exemption
To maximise your exemption under Section 10(13A):
● Opt for the old tax regime when filing ITR if HRA gives you a tax advantage.
● Submit rent receipts and supporting documents to your employer.
● Ensure HRA is part of your CTC. Without this, no claim is allowed.
● Use an HRA calculator to compare exemptions under the old and new regimes.
● Keep documentation ready in case of queries or notices.

Many taxpayers also compare renting vs buying before choosing a long-term option. Some prefer renting while building capital to purchase a house later through a Bajaj Housing Finance home loan, which offers benefits such as repayment flexibility and competitive rates.

HRA and home loan: Can both be claimed?
Yes, you can claim:
● HRA exemption for living in a rented house
and
● Home loan benefits (principal under 80C and interest under 24(b)) for a house purchased using a home loan

This combination may significantly reduce your tax liability.

Conclusion
House rent allowance remains one of the most valuable tax-saving tools for salaried employees opting for the old tax regime. With proper documentation, accurate calculation, and timely submission, you can reduce your taxable income while ensuring full compliance with income tax rules.
If you plan to transition from renting to owning a home in the future, reviewing repayment options and benefits through a Bajaj Housing Finance home loan can also help you build long-term financial stability.

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