House Rent Allowance (HRA) is one of the most important salary components for salaried individuals living in rented accommodation. It helps reduce taxable income and allows significant tax savings under the old tax regime. However, with the introduction of the new income tax regime, many taxpayers are confused about whether they can still claim the HRA exemption.

At Sharda Associates, we guide individuals in understanding tax rules, calculating exemptions, and choosing the best tax-saving strategies. If you want to maximise your tax savings in 2026, understanding the HRA exemption is essential.

HRA Exemption Under New Income Tax Rules 2026

Under the new tax regime, most exemptions and deductions have been removed, including HRA exemption. This means if you opt for the new regime, you cannot claim HRA benefits even if you are paying rent.

However, under the old tax regime, HRA exemption is still available and can significantly reduce your taxable income. Therefore, taxpayers must compare both regimes before making a decision.

If you have high rent and salary structure includes HRA, the old regime may be more beneficial.

Who is Eligible to Claim HRA Exemption?

Not every salaried individual can claim HRA exemption. Certain conditions must be fulfilled.

Basic Eligibility Conditions

  • You must be a salaried employee receiving HRA as part of your salary
  • You must live in a rented house
  • You must actually pay rent
  • The rented house should not be owned by you

If you are living in your own house or not receiving HRA, you cannot claim this exemption.

What is HRA exemption limit?

HRA House Rent Allowance received can be claimed as a tax exemption, however the exemption is limited to certain threshold and is not fully tax-exempt unless specific conditions are met. 

HRA exemption amount is the lowest of the following:

  • Actual HRA received from employer, or
  • 50% of basic salary (For metro cities) or 40% of basic salary (Non-metro cities), or
  • Rent paid minus 10% of basic salary 

In simple terms, the amount that can be claimed u/s 10(13A) as HRA exemption is least of the following:

  Metro Cities Other Cities
1. HRA Received Actual HRA Received Actual HRA Received
2. Salary Percentage 50% of Salary 40% of Salary
3. Rent Deduction Rent Paid – 10% of Salary Rent Paid – 10% of Salary

Note: 

  • Salary here means Basic + Dearness Allowance + Commission as a percentage of turnover. 
  • Metro Cities include Delhi, Chennai,, Mumbai, Kolkata, Bengaluru, Pune, Hyderabad, and Ahmedabad. 

How is HRA Exemption Calculated?

Mr. Anwar, employed in New Delhi, has taken up an accommodation on rent for which he pays Rs. 10,000 per month during the FY 2025-26. He receives a basic salary of Rs. 27,000 monthly. He also gets an HRA of Rs. 1 lakh from his employer during the year.

HRA exemption would be the lowest of the following:

Particulars Amount
HRA Received Rs. 1 lakhs
50% of Basic Salary & DA, as he stays in New Delhi 50% of Rs. 3,24,000 = Rs. 1,62,000
Rent paid – 10% of Basic Salary and DA (Rs.10,000*12) – 10% of Rs. 3,24,000 = Rs. 87,600

As the HRA House Rent Allowance received is Rs. 1 lakhs the entire HRA component will not be exempt for Mr. Anwar. The exemption will be the least i.e., Rs. 87,600. The remaining HRA component  of Rs. 12,400 (Rs. 1 lakh – Rs. 87,600) will be taxed at applicable income tax slabs. This is only if Mr. Anwar opts for the Old Tax Regime. 

This exemption will not to available to Mr. Anwar under the New Tax Regime implying that the entire HRA of Rs. 1 lakhs will be taxed at applicable slab rates.  

HRA Exemption Calculation

HRA exemption is calculated based on three conditions. The minimum of these three values is considered the exempt amount:

Calculation Factors

  1. Actual HRA received from employer
  2. 50% of salary (for metro cities) or 40% (for non-metro cities)
  3. Rent paid minus 10% of salary

 Salary here includes basic salary + dearness allowance (if applicable).

Example Calculation

Suppose:

  • Salary = ₹50,000/month
  • HRA received = ₹20,000/month
  • Rent paid = ₹18,000/month

You calculate all three values and the lowest one becomes your exempt HRA. The remaining HRA is taxable.

 Proper calculation helps you maximize tax savings legally.

HRA Exemption Calculator

To simplify calculations, you can use an HRA calculator. It automatically computes exemption based on your salary, rent, and HRA received.

Using a calculator reduces errors and helps you compare tax savings under different scenarios. It is especially useful when choosing between old and new tax regimes.

👉 Professional assistance ensures accurate calculation and better tax planning.

How to Claim HRA Exemption?

Claiming HRA exemption is a simple process but requires proper documentation and accuracy.

Steps to Claim HRA

  • Submit rent receipts to your employer
  • Provide landlord details (if rent exceeds ₹1 lakh annually)
  • Ensure rent payment proof is available
  • Report HRA correctly in your ITR

Your employer may consider HRA during TDS calculation, but you must verify it while filing your return.

What Documents are Required to Claim HRA Exemption?

Proper documentation is essential to claim HRA exemption without any issues.

Required Documents

  • Rent receipts
  • Rental agreement
  • Form 12BB
  • Landlord PAN (if applicable)
  • Bank payment proof
  • Salary slip where HRA is incorporated 
  • PAN of landlord – if the rent exceeds Rs.1 Lakh per annum. Else, you may lose out on the HRA exemption.

👉 Keeping proper records helps avoid notices from the Income Tax Department.

Section 80GG of the Income Tax Act

Section 80GG provides relief to individuals who do not receive HRA but still pay rent.

Under this section, taxpayers can claim a deduction for rent paid, subject to certain limits and conditions. This is beneficial for self-employed individuals or salaried employees without HRA benefits.

However, the deduction amount is limited and depends on income and rent paid. Proper calculation is required to claim benefits correctly.

Conclusion

HRA exemption remains one of the most valuable tax-saving benefits under the old tax regime in 2026. However, with the introduction of the new tax regime, taxpayers must carefully evaluate whether to opt for deductions or lower tax rates.

Understanding eligibility, calculation methods, and documentation requirements is essential to claim HRA correctly. Proper planning can significantly reduce your tax burden and improve financial management.

With expert guidance from Sharda Associates, you can choose the right tax strategy, maximize your HRA benefits, and ensure compliance with income tax rules in 2026.   You can contact us at +91 8989977769 for any query or if you require our services to prepare a project report or a bank loan.

FAQs

1. Can I claim HRA under the new tax regime in 2026?

No, HRA exemption is not allowed under the new tax regime. Taxpayers opting for the new regime cannot claim HRA benefits and must choose the old regime to avail this exemption.

2. How is HRA exemption calculated?

HRA exemption is calculated as the lowest of three values: actual HRA received, 50% or 40% of salary, and rent paid minus 10% of salary, depending on city type.

3. Is rent receipt mandatory for HRA claim?

Yes, rent receipts are required as proof of rent payment. If rent exceeds ₹1 lakh annually, landlord PAN details must also be provided to claim HRA exemption successfully.

4. Can I claim HRA if I live with parents?

Yes, you can claim HRA if you pay rent to your parents and have proper rent receipts and agreement. The transaction should be genuine and properly documented.

5. What is Section 80GG?

Section 80GG allows individuals who do not receive HRA to claim deduction for rent paid, subject to certain conditions and limits under the Income Tax Act.