HRA — House Rent Allowance

HRA is a salary allowance paid to help with rent. Under the Old regime part of it is exempt from tax; the New regime does not allow the HRA exemption.

What it is

House Rent Allowance is a component of salary that employers pay to staff who live in rented accommodation. Under the Old regime, a portion of the HRA you receive can be exempt from tax, provided you actually pay rent. The exempt amount is the least of three figures: the actual HRA received; the rent you paid minus 10% of your salary; and 50% of your salary if you live in a metro city, or 40% if you live in a non-metro. Whatever is left over after the exemption is added to your taxable salary.

Why it matters

The HRA exemption can meaningfully reduce your taxable income if you rent — but only on the Old regime. The New regime does not permit it, which is a key trade-off when you compare regimes: the New regime offers a larger standard deduction but drops allowances like HRA. Your HRA and the exemption claimed usually appear on your Form 16, so it is worth checking the figures match your rent records.

Example Illustrative

Suppose you live in a metro, receive HRA of ₹2,40,000, pay rent of ₹3,00,000, and your salary for HRA purposes is ₹6,00,000. The three limits are ₹2,40,000 (actual HRA), ₹2,40,000 (rent minus 10% of salary), and ₹3,00,000 (50% of salary). The least is ₹2,40,000, so that much is exempt under the Old regime. Figures are illustrative only.