HRA Exemption Under Section 10(13A)
House Rent Allowance (HRA) is a component of your salary that helps salaried employees meet their rental expenses. The Income Tax Act provides an exemption on HRA under Section 10(13A), which means a portion of the HRA you receive from your employer is not taxable — provided you actually pay rent for a house.
The Three-Condition Formula
The amount of HRA that is exempt from tax is the minimum of the following three conditions, calculated on a monthly basis:
| Condition | Description |
|---|---|
| Condition A | Actual HRA received from employer |
| Condition B | 50% of Basic Salary (Metro) or 40% of Basic (Non-Metro) |
| Condition C | Actual Rent Paid − 10% of Basic Salary |
The exempt HRA = Minimum of A, B, C. The remaining HRA (total received minus exempt) is added to your taxable salary.
Metro vs Non-Metro Cities
Only four cities qualify as metro for HRA purposes under Section 10(13A) of the Income Tax Act: Delhi (NCT), Mumbai, Chennai, and Kolkata. Even though cities like Bengaluru, Hyderabad, and Pune are major metros in common parlance, the Income Tax rules still treat them as non-metro — so the condition B limit is 40% of basic salary, not 50%.
When is Condition C Nil?
Condition C becomes nil (₹0) when rent paid is less than or equal to 10% of basic salary. In that case, the HRA exemption is zero — all HRA received becomes taxable. This typically happens when someone pays very low rent relative to their salary, or claims HRA without actually paying rent. Paying rent equal to at least 10% of basic + a small amount is the minimum needed for any exemption.
Rent to Parents — Is It Valid?
Yes, paying rent to parents is a valid arrangement for claiming HRA exemption, subject to the following conditions:
- The house must be genuinely owned by your parent(s) — not co-owned with you
- A proper rent agreement on stamp paper is recommended
- Rent should be paid via bank transfer (not cash) for proof
- Your parent must declare the rent received as income in their ITR
The net tax saving depends on your tax slab vs your parent's slab. If your parents are in a lower bracket or have no other income, the family's overall tax liability can reduce significantly.
What Documents to Submit to Employer
To have TDS adjusted for HRA exemption, submit Form 12BB to your employer with:
- Rent receipts (monthly) signed by the landlord
- Copy of rent agreement
- PAN of landlord (mandatory if annual rent exceeds ₹1,00,000)
If you forget to submit to the employer, you can still claim HRA exemption when filing your ITR — the excess TDS deducted will be refunded.
HRA for Self-Employed — Section 80GG
Self-employed individuals and those whose salary does not include HRA cannot claim under Section 10(13A). They can instead claim deduction under Section 80GG, which allows a deduction of the least of:
- ₹5,000 per month (₹60,000 per year)
- 25% of total income
- Rent paid minus 10% of total income
Section 80GG is only available in the Old Tax Regime and requires that neither you nor your spouse/minor child own a house in the city you live in.