How to compute HRA exemption.

What is HRA?

If you are a Salaried Employee then you must know about the HRA. The Term HRA stands for House Rent Allowance. Generally every employee receives a HRA from their employers. This is a part of the salary package, in accordance with the terms and conditions of employment.

HRA is given to meet the cost of a rented house taken by the employee for his stay. The Income Tax Act allows for deduction in respect of the HRA paid to employees so that employee get some relief in terms of Tax Savings.

But recently CBDT changes some law related to HRA. According to a circular issued by the Central Board of Direct Taxes (CBDT) on 10 October 2013, if annual rent paid by an employee exceeds Rs.1 lakh per annum, it is mandatory for the employee to report PAN of the landlord to the employer.

If your landlord doesn’t have a PAN, you have to make a declaration. According to the CBDT circular, in case the landlord does not have a PAN, a declaration to this effect from the landlord along with the name and address of the landlord should be filed by the employee

Some employee believes that Tax Saving on HRA shall be available on the Total Rent paid but this is mith. There is condition as per Rule 2A/Section 10(13A)

CONDITION:  As Per rule 2A/section 10(13A) an ‘Employee’ who is in receipt of HRA can claim exemption, if he doesn’t live in his own house & pays rent in excess of 10%   of salary for his residence.


a)      When the Assessee stays in his own house.

b)      When Assessee doesn’t pay any rent.

c)      When he doesn’t incur any expenditure towards rent.

d)      When rent paid is less than 10% of salary.

There is always a Question which arises every mind that Whether HOME LOAN Tax Benefit & HRA claim simultaneously.

The tax benefits for home loan and HRA are two separate entities and have no direct bearing on each other. As long as you are paying rent for an accommodation, you can claim tax benefits on the HRA component of your salary, while also availing tax benefits on your home loan. This could be the case if your own home is rented out or you work from another city etc. However, you need to account for any rental income you receive from the property you own under income from other sources.


Salary=Basic Salary + DA for retirement benefits + Commission forming part of salary.

Taxable HRA

Amount received for HRA                                                                      XXXX

Less: exemption u/s 10(13A) is minimum of the following;

  1. Actual amount received                             XX
  2. 50% / 40% of salary*                                  XX
  3. Rent paid less 10% of salary                      XX                                XX

TAXABLE HRA                                                                                                                XXX

*50% if employee resides in Delhi/Mumbai/Kolkata/Chennai otherwise 40%