House Rent Allowance (HRA) – Complete Guide to Section 10(13A)
Section 10(13A) of the Income Tax Act grants exemption on House Rent Allowance (HRA) received by employees, subject to certain conditions. The quantum of exemption is prescribed under Rule 2A of the Income Tax Rules, 1961.
HRA is one of the most important salary components for salaried individuals, as it not only helps meet rental expenses but also offers significant tax savings.
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What is House Rent Allowance (HRA)?
House Rent Allowance (HRA) is an allowance paid by an employer to an employee to cover rental expenses for residential accommodation.
- HRA is a taxable allowance under the Income Tax Act.
- However, an employee can claim exemption under Section 10(13A) if specific conditions are met.
Conditions to Claim HRA Exemption
To claim HRA exemption, the following conditions must be satisfied:
- The employee must be a salaried individual.
- The employee must be paying rent for residential accommodation.
- The employee should not own a house in the city where they currently reside.
- The employee must have proof of rent payment (rent receipts, agreement, bank transfer).
- Exemption can only be claimed for the current financial year.
- HRA exemption cannot be claimed simultaneously with rent deduction under Section 80GG.
Section 10(13A) – Copy of the Provision
“Any special allowance specifically granted to an assessee by his employer to meet expenditure actually incurred on payment of rent (by whatever name called) in respect of residential accommodation occupied by the assessee, to such extent as may be prescribed having regard to the area or place in which such accommodation is situated and other relevant considerations.”
Explanation:
HRA exemption does not apply if:
- The residential accommodation is owned by the employee.
- The employee has not actually incurred expenditure on rent.
Documents Required for HRA Exemption
HRA exemptions can be claimed only upon submission of rent receipts or the rent agreement with the house owner. It is mandatory for employees to provide the PAN card details of the landlord to the employer if the rent paid exceeds ₹1,00,000 annually or ₹15,000 per month.
Special Cases for Claiming HRA Tax Benefits
Paying Rent to Family Members
The rented property must not be owned by the person claiming the tax exemption. For example, if you stay with your parents and pay them rent, you can claim HRA tax deductions. However, you cannot pay rent to your spouse, as the relationship implies shared accommodation. Such transactions may attract scrutiny from the Income Tax Department.
Owning a House but Living in a Different City
If you own a home but live in a different city for work, you can claim both HRA exemption and deductions on your home loan (for principal repayment and interest paid). This applies if your home is rented out or if you maintain a residence in the city where you work.
Quantum of Exemption – Rule 2A
The HRA exemption is the least of the following:
- Actual HRA received
- Rent paid – 10% of Salary
- 50% of Salary (if living in metro cities: Mumbai, Delhi, Kolkata, Chennai)
- 40% of Salary (if living in non-metro cities)
Note: Salary = Basic + DA (if part of retirement benefits)
Example of HRA Calculation
Let’s consider an example:
Mr. XYZ works in an MNC with the following salary structure (LPA ₹12,00,000):
- Basic = ₹6,50,000
- DA = ₹1,50,000
- HRA = ₹2,00,000
- Other Allowances = ₹2,00,000
He lives in Bangalore, pays ₹20,000/month rent (₹2,40,000 annually).
Step-by-Step Calculation:
- Actual HRA received = ₹2,00,000
- Rent paid – 10% of Salary = (₹2,40,000 – ₹80,000) = ₹1,60,000
- 40% of Salary = 40% of (₹6,50,000 + ₹1,50,000) = ₹3,20,000
HRA Exemption = Least of the above = ₹1,60,000
Tabular Illustration
|
Particulars
(Yearly) |
Case I |
Case II |
Case III |
|
Basic + DA |
3,00,000 |
3,00,000 |
2,70,000 |
|
HRA |
1,00,000 |
1,00,000 |
1,30,000 |
|
Rent Paid |
1,20,000 |
2,00,000 |
2,00,000 |
|
Actual HRA
Received |
1,00,000 |
1,00,000 |
1,00,000 |
|
50%/40% of
Salary |
1,50,000 |
1,50,000 |
1,35,000 |
|
Rent – 10% of
Salary |
90,000 |
1,70,000 |
1,73,000 |
|
Exempt HRA |
90,000 |
1,00,000 |
1,30,000 |
Expenses Covered Under HRA (Sec 10(13A))
- Rent paid for residential accommodation
- Brokerage or commission to agents for securing rented property
- Maintenance charges (e.g., society fees)
- Utilities – electricity, water, gas bills
- Lease agreement charges
- Municipal/property taxes
- Stamp duty on rental agreements
Documentation Required
To claim HRA exemption, you need:
- Rent receipts (monthly/quarterly)
- Rent agreement (if demanded by employer)
- PAN of landlord (if annual rent > ₹1,00,000)
- Bank statements showing rent payments
Important: Rent above ₹2,00,000/year paid in cash can attract scrutiny. Prefer cheque or online transfers.
Claiming HRA Paid to Parents
Yes, HRA can be claimed if you pay rent to your parents. Conditions:
- A proper rent agreement should be executed.
- Rent should be transferred to parents’ bank account.
- Parents must report it as rental income in their ITR.
❌ Rent cannot be paid to spouse for HRA claims.
Special Cases
- You can claim HRA exemption + home loan benefits if your owned house is rented out or located in another city.
- You cannot claim HRA for two houses simultaneously.
Common Reasons for Rejection
- Fake rent receipts
- Missing landlord PAN (if mandatory)
- No verifiable proof of rent payment
Benefits of Section 10(13A)
- Tax Savings – Reduces taxable income
- Financial Relief – Offsets high rent costs
- Encourages Rentals – Especially in metro cities
- Simplifies Compliance – Provides a structured exemption method
HRA Exemption Calculator
(Section 10(13A))
Conclusion:
HRA exemption under Section 10(13A) is one of the most beneficial tax-saving provisions for salaried individuals. By keeping proper documents and following the rules, employees can legally reduce their tax liability and enjoy financial relief on house rent expenses.
FAQs on HRA Exemption
Can I claim both HRA exemption and Home Loan Deduction?
Yes, if conditions are satisfied.
Can I claim HRA for two houses?
No, only for one rented house.
Are rent receipts required?
Yes, if rent > ₹5,000/month.
Does HRA include electricity or maintenance?
No, HRA exemption applies only to rent paid.
Do I need to deduct TDS on rent?
Yes, under Section 194IB, if rent exceeds ₹50,000/month, tenant must deduct TDS @5%.
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