Claiming HRA Exemption? Here Is Why It May Not Reduce Your Tax Much

On Friday, April 24, 2026, the Income Tax Department stated that availing the house rent allowance (HRA) exemption does not always result in significant tax savings, clarifying that this is just a misconception. Consequently, taxpayers are recommended to think wisely before making any financial or compliance decisions. The tax department in a post at platform ‘X’ stated, “HRA exemption does not necessarily result in similar tax savings.”

A House Rent Allowance (HRA) exemption can be claimed by salaried employees to reduce their taxable income on rental expenses. HRA is part of an individual’s salary that can be claimed as an exemption subject to certain conditions.

As per the clarification of the tax department, the amount of benefit that can be enjoyed from HRA exemption mainly depends on how much tax you have paid, how much salary you earn, and whether it pertains to a metro or non-metro city.

The amount in HRA exemption is not always the same; however, under the old tax regime, it is calculated under Section 10(13A) of the Income Tax Act and is the lowest of the following:

• The actual HRA received from the employer
• 50% of basic salary for those living in metro cities or 40% for non-metros
• The rent paid is minus 10% of the basic salary.

Taxpayers must be aware that the metro cities should only include Delhi, Chennai, Mumbai, Kolkata, Bengaluru, Pune, Hyderabad, and Ahmedabad. For this calculation, “salary” is defined as Basic Salary + Dearness Allowance (DA) (if it forms part of retirement benefits) + Commission (if it’s a fixed percentage of turnover).

Conditions Under Which HRA Exemption Can Be Claimed:

HRA exemption can be claimed by a salaried employee if he/she fulfils the following conditions:

• This relief is only available under the old tax regime.
• The taxpayer should be living in a rented accommodation. Also, the payment of rent should be verified by receipts.
• The taxpayer should not be the owner of the premises where he/she is residing.
• HRA exemption can be claimed for the rental premises in the city where you are working, even if you own a property in some other city.
• Taxpayers can claim HRA exemption on the rent paid to their parents, on the condition that parents have disclosed the same in their income tax return (ITR) as rental income.

If a taxpayer satisfies all the aforementioned eligibility criteria, then they can avail themselves of the HRA exemption by furnishing documents, including rent receipts, a rental agreement, Form 12BB, a salary slip where HRA is incorporated, and the landlord’s PAN (required if annual rent is more than Rs 1 lakh).