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Section 10(13A): The HRA Exemption Rule

Salaried individuals who live in rented accommodation can claim HRA (House Rent Allowance) exemption to lower their taxes. However, the exemption is not simply "Rent Paid." The Income Tax Department uses the "Least of 3" rule to calculate the exact amount.

The "Least of the Following" Rule

Your exemption is the LOWEST of these three figures:

1. Actual HRA Received: The amount your employer pays you as HRA component.
2. Rent Paid minus 10% of Salary: (Actual Rent - 10% of [Basic + DA]). This ensures you personally bear at least 10% of your salary as rent.
3. 50% or 40% of Salary:
   • 50% if you live in a Metro city (Delhi, Mumbai, Chennai, Kolkata).
   • 40% for all other cities (Bangalore, Pune, Hyderabad, etc.).

Important Documents & Rules

1. PAN Card of Landlord

If your annual rent payment exceeds ₹1,00,000 (approx ₹8,333/month), it is mandatory to provide the PAN Card number of your landlord to your employer. If the landlord does not have a PAN, a declaration is required.

2. Rent Receipts

You must submit monthly rent receipts or a valid Rent Agreement as proof of payment. Fake receipts are strictly monitored by AI tools used by the Tax Department.

3. Can I pay rent to parents?

Yes. You can pay rent to your parents and claim HRA if:
• They own the house.
• You actually transfer money to their bank account.
• They declare this rent as "Income from House Property" in their tax returns.
(Note: You cannot pay rent to your spouse.)

HRA vs. Home Loan (Can I claim both?)

Yes, you can claim both HRA and Home Loan tax benefits (Section 24b) simultaneously in specific cases:

• Case 1: You own a house in City A (claimed Home Loan interest) but work in City B and live on rent (claim HRA).
• Case 2: You own a house in the same city but cannot live in it due to genuine reasons (e.g., workplace is very far), so you rent an apartment near the office. (Subject to scrutiny).