Section 10(13A) — 3-Rule Minimum Test
HRA Exemption Formula — Section 10(13A)
Under the Indian Income Tax Act, HRA exemption is computed as the minimum of three conditions. This protects employees from being over-taxed on genuine rent payments:
- Condition 1: Actual HRA received from employer
- Condition 2: Actual rent paid − 10% of (Basic Salary + DA)
- Condition 3: 50% of Basic Salary (Metro cities) or 40% of Basic Salary (Non-Metro cities)
Metro cities for this calculation: Delhi, Mumbai, Chennai, and Kolkata. All other cities use the 40% rule.
Monthly vs Annual HRA Summary
| Component | Monthly | Annual |
|---|
Frequently Asked Questions
No. HRA exemption under Section 10(13A) is only available under the old tax regime. If you opt for the new tax regime (default from FY 2023-24), you cannot claim HRA exemption. However, you can deduct rent from your taxable income under the new regime only if you are self-employed and working from home (Section 80GG, subject to conditions). For most salaried employees paying high rent, staying in the old regime and claiming HRA exemption is more beneficial.
Yes. You can pay rent to your parents and claim HRA exemption. However, this requires: (1) A genuine rent agreement signed with your parent, (2) Actual rent transfer by bank or cheque (cash payments are risky), (3) Your parent must declare the rent received as income in their ITR. The arrangement must be genuine and not simply a paper transaction. Your parent can benefit from standard deduction of 30% on rental income, making this genuinely tax-efficient for the family.
If HRA is not part of your salary but you pay rent, you can still claim a deduction under Section 80GG. The 80GG deduction is the minimum of: (1) ₹5,000/month (₹60,000/year), (2) 25% of your total income, or (3) Actual rent paid minus 10% of total income. You cannot claim 80GG if you (or your spouse or minor child) own a house in the city where you work. File Form 10BA to claim this deduction.
DA (Dearness Allowance) is an additional allowance paid primarily to government employees to offset inflation. For HRA calculations, the 10% deduction in Condition 2 is applied on (Basic + DA), not just Basic. Similarly, the 50%/40% limit in Condition 3 is on Basic salary only. For most private sector employees, DA = 0, so only Basic salary is used in the formula. Government employees must include DA when computing HRA exemption.