HRA tax exemption looks simple on paper: a formula, a percentage, a rent figure. It gets more complicated the moment the rent goes to a parent, the salary has no HRA line at all, or the annual rent crosses ₹1 lakh and starts pulling in PAN and TDS requirements. This guide covers those situations directly, along with the mistakes that most often draw a follow-up query from the tax department. For the base formula itself, see the HRA calculator guide; this one picks up where that leaves off.
A note on citations: the Income-tax Act, 1961 was replaced by the Income-tax Act, 2025, which came into force on 1 April 2026 and governs income earned in the current financial year. Section 10(13A), Section 80GG, and Section 194-IB, all referenced below by their long-familiar 1961 Act numbers, continue in substance under the new Act with renumbered provisions. This guide keeps the 1961 numbering, since that's what's most widely recognised, and flags the new Act by name rather than citing an unconfirmed new section number.
HRA Exemption Rules Explained in Detail
HRA exemption under Section 10(13A) of the Income Tax Act, 1961, read with Rule 2A of the Income Tax Rules, 1962, exempts the least of three amounts from tax: the actual HRA received, rent paid minus 10% of salary, and 50% of salary for a metro city or 40% for a non-metro city. Here, "salary" means basic pay plus dearness allowance where the DA counts toward retirement benefits, plus commission if it's a fixed percentage of turnover.
Three conditions sit underneath that formula, and all three have to hold before any exemption applies. The claimant has to be a salaried employee who actually receives HRA as a distinct part of their salary. They have to be genuinely paying rent for the place they live in. And the accommodation can't be owned by the employee, their spouse, or their minor child; there's no rent being paid to anyone in that case, so there's nothing to exempt.
A detail that trips people up: the exemption is computed period by period, not as a single annual number. If someone moves cities partway through the year, changes their rent, or gets an HRA revision mid-year, the calculation runs separately for each period at the applicable figures for that period, and the results are added together. Running the full year's numbers through a single average tends to produce a different, usually less accurate, figure than doing it month by month or period by period.
The exemption is available only under the old tax regime; it's excluded entirely under the new regime, introduced through Section 115BAC of the 1961 Act and continued under the Income-tax Act, 2025. That single fact changes the entire calculation for anyone who has switched regimes, since HRA becomes fully taxable with no computation to run at all.
The HRA calculator applies this formula directly, and running your own salary and rent figures through it is generally faster than working out the least-of-three by hand, especially across a year with more than one period.
What If You Pay Rent to a Family Member?
There's no rule under Section 10(13A) that bars claiming HRA exemption when rent is paid to a parent or other relative, provided the arrangement is a real tenancy and not just a transfer of money on paper. The three conditions from the previous section still apply in full: the property has to genuinely not be owned by the employee, their spouse, or their minor child, and actual rent has to change hands.
For a claim like this to hold up, the details generally need to line up the way any other tenancy would. A rent agreement, even an informal one, helps establish the arrangement. Rent should move through a bank transfer rather than cash, so there's a paper trail showing the payment actually happened and when. The parent, as the recipient, needs to treat the rent as income in their own return; rental income from a family member is taxable to the recipient the same way it would be for any other landlord, after accounting for the standard deduction available on house property income.
What generally doesn't hold up as well is rent paid to a spouse. Since spouses typically share finances and the "rent" can look like money moving between the same household, an arrangement like this attracts more scrutiny than a payment to a parent living separately.
For example, an employee renting a portion of a house owned by their mother, paying ₹15,000 a month by bank transfer under a signed rent agreement, with the mother declaring that rent as income in her own return, has a materially stronger position than the same employee paying the same amount in cash with no agreement and no corresponding entry in the parent's return. The exemption formula itself doesn't change based on who the landlord is; what changes is how easily the claim can be defended if it's ever questioned.
Claiming HRA Without an Employer HRA Component
Section 10(13A) only applies to employees who actually receive HRA as a distinct salary component. Someone whose salary structure has no HRA line, along with anyone self-employed, can't use that section at all, regardless of how much rent they pay.
Section 80GG of the Income Tax Act exists for exactly this situation. It's a separate deduction available to individuals, salaried or self-employed, who pay rent but don't receive HRA, provided neither they, their spouse, their minor child, nor an HUF they belong to owns residential accommodation at the place where they live or work.
The Section 80GG deduction is the least of three amounts: ₹5,000 a month, which works out to ₹60,000 a year, following the limit raised by the Finance Act, 2016, with effect from 1 April 2017; 25% of adjusted total income; or rent paid minus 10% of adjusted total income. Claiming it requires filing Form 10BA, a self-declaration confirming the conditions are met, on or before the due date for filing the income tax return.
For example, someone with no HRA component, adjusted total income of ₹6,00,000 a year, and rent of ₹12,000 a month, meaning ₹1,44,000 a year, would compare: ₹60,000 as the flat limit; 25% of ₹6,00,000, which is ₹1,50,000; and rent minus 10% of income, which is ₹1,44,000 − ₹60,000 = ₹84,000. The least of these three is ₹60,000, so that's the deduction available, even though the rent-minus-10%-of-income figure alone would have suggested a higher number.
Section 80GG sits under Chapter VI-A of the Income Tax Act and, like most Chapter VI-A deductions, is available only under the old tax regime.
PAN Requirement When Annual Rent Exceeds ₹1 Lakh
Whether the exemption is being claimed under Section 10(13A) or Section 80GG, the landlord's PAN becomes a documentation requirement once annual rent paid crosses ₹1,00,000, which works out to a little over ₹8,333 a month. This threshold has been in place under CBDT guidance for over a decade and is reflected in the Income Tax Department's own reference material on salary income.
If the landlord doesn't have a PAN, the standard workaround is a signed declaration from the landlord confirming they don't have one, along with their name and address. That declaration, together with rent receipts and any rent agreement, generally forms the documentation an employer expects before including the exemption in monthly TDS calculations, and it's the same set of documents that would be needed if the claim is instead made directly in an income tax return.
There's a separate rule that applies at a similar rent level but works through a different mechanism entirely. Under Section 194-IB, an individual tenant who isn't already subject to tax audit and who pays rent exceeding ₹50,000 a month is required to deduct TDS before paying the landlord, once a month or at the end of the tenancy, and deposit it using Form 26QC. The rate was 5% when Section 194-IB was introduced in 2017, and the Finance (No. 2) Act, 2024 reduced it to 2%, effective 1 October 2024. Missing this TDS obligation is a compliance gap distinct from missing the landlord's PAN for the HRA exemption itself, and the two are sometimes confused with each other.
An employee paying rent above the ₹1,00,000 annual threshold but below the ₹50,000 monthly TDS threshold, for instance ₹8,500 a month, needs the landlord's PAN for the exemption but has no TDS obligation under Section 194-IB, since ₹8,500 doesn't cross ₹50,000 a month. Whether one or both requirements apply depends on where the monthly rent actually falls.
Common HRA Claim Mistakes That Trigger IT Notices
Most HRA-related notices trace back to a mismatch between what's been claimed and what the underlying paperwork shows. A few patterns come up repeatedly.
Claiming HRA exemption while living in a self-owned house, or one owned by a spouse or minor child, is a straightforward disqualifier under Section 10(13A). It gets flagged when a mismatch shows up between the employee's declared address and property records, or when the same address appears against the employee's own name elsewhere in tax filings.
Rent receipts without a matching money trail are a recurring issue, particularly where rent is paid in cash and no bank record exists to back up the receipt. Where the landlord's PAN has been provided, a similar rent figure is expected to eventually show up as declared income on the landlord's side; a persistent mismatch here is one of the more common triggers for a query.
Claiming the exemption under the new tax regime, whether through an error in the employer's payroll system or a mismatch when switching regimes between financial years, results in HRA being wrongly treated as exempt when it should be fully taxable. This surfaces during return processing when the department's own reconciliation catches the mismatch between the regime selected and the exemption claimed.
Overstating the "salary" figure that Rule 2A uses, for instance including bonus or special allowance that don't count toward the definition, inflates all three parts of the least-of-three formula and produces an exemption higher than what the rule actually allows.
Is This Right For You?
This guide covers general HRA exemption rules for common situations: renting from a family member, claiming without an employer HRA component, and the PAN and TDS thresholds tied to rent amount. It isn't a substitute for professional advice where an employer disputes an HRA claim, where a family rental arrangement is under active scrutiny, where TDS on rent has been missed for an extended period, or where the amounts involved are large enough that a wrong call would be costly. A chartered accountant familiar with the specific facts is better placed to advise in those situations.
Conclusion
HRA exemption rules don't change based on who the landlord is or whether HRA appears as a distinct salary component, but the paperwork and the applicable section both do. Rent paid to a parent can support a valid Section 10(13A) claim provided it's genuine and documented; no HRA at all shifts the claim to Section 80GG instead, with its own ₹5,000-a-month ceiling; and annual rent above ₹1,00,000 brings the landlord's PAN into the picture, separate from the TDS obligation that kicks in at a different, monthly threshold. Most of the notices that follow HRA claims trace back to one of these details being missed rather than to the exemption itself being disallowed outright.
To check where your own numbers land against the least-of-three formula, use the HRA calculator, and see the HRA calculator guide for the full metro-versus-non-metro walkthrough. The gratuity calculator guide and EPF calculator guide cover two other salary components that follow the same old-versus-new regime split.
FAQs
Can I claim HRA if I pay rent to my parents?
Generally, yes, provided the arrangement is genuine: a rent agreement, rent paid through a bank transfer rather than cash, and the parent declaring that rent as income in their own return. The same three conditions under Section 10(13A) still apply, including that the property isn't owned by the employee, their spouse, or their minor child. Rent paid to a spouse is treated far more skeptically than rent paid to a parent.
What happens if my landlord doesn't have a PAN?
A signed declaration from the landlord confirming they have no PAN, along with their name and address, is generally accepted in place of a PAN once annual rent crosses ₹1,00,000. This declaration, together with rent receipts, forms the documentation an employer or the income tax department would expect to see if the exemption claim is questioned.
Is there an income tax notice risk in HRA claims?
Yes, in specific situations rather than as a general rule. Claiming HRA while living in a self-owned house, cash rent payments with no bank trail, a mismatch between declared rent and the landlord's reported income, and claiming the exemption under the new tax regime by mistake are the patterns that most often lead to a follow-up query from the department.
Can self-employed individuals claim any HRA-equivalent deduction?
Self-employed individuals can't claim HRA exemption under Section 10(13A), since that section requires HRA to be received as a salary component. Section 80GG offers a separate deduction instead, available to both self-employed individuals and salaried employees without an HRA component, capped at the least of ₹5,000 a month, 25% of adjusted total income, or rent paid minus 10% of adjusted total income.
Sources
- Income Tax Department, Schedule 10(13A) – House Rent Allowance: official confirmation of the least-of-three formula and salary definition under Section 10(13A) and Rule 2A
- Income Tax Department, "Salary" reference page: confirms the ₹1,00,000 landlord-PAN threshold, citing CBDT Circular No. 01/2019
- Income Tax Department, Section 80GG: statutory text of the deduction for rent paid where HRA isn't received, with Rule 11B requiring Form 10BA
- Finance Bill, 2016, Clause 38: raised the Section 80GG monthly limit from ₹2,000 to ₹5,000, effective 1 April 2017 (Assessment Year 2017-18 onward)
- Income Tax Department, FAQs on New Tax Regime vs Old Tax Regime: confirms neither Section 10(13A) nor Chapter VI-A deductions like Section 80GG apply under the new regime
- Finance (No. 2) Act, 2024: reduced the Section 194-IB TDS rate on rent above ₹50,000/month from 5% to 2%, effective 1 October 2024 (cross-checked against EY India's technical alert on the transition and contemporaneous Union Budget 2024 coverage)
- CBDT, official press release: confirms the Income-tax Act, 2025 came into force on 1 April 2026, replacing the Income-tax Act, 1961, for income earned from FY 2026-27 onward
Tax rules, thresholds, and TDS rates are set by statute, rule, and CBDT notification, and can change. Confirm the current figures against the Income Tax Department's website before relying on this guide for a large claim. Note also that the Income-tax Act, 2025 has replaced the 1961 Act referenced throughout this guide; the provisions themselves are unchanged in substance, but section numbers have been renumbered — see the note below the introduction.