House Rent Allowance (HRA) Rules Updated for FY 2025-26: Full Guide for Salaried Employees

📅 Updated on: May 4, 2025
✍️ By TalesXP

📰 Highlights

• New tax regime is now the default, but HRA is exempt only under the old regime.
• PAN of landlord mandatory for annual rent over ₹1 lakh.
• Claims made for rent paid to family now face increased scrutiny.
• Exclusive HRA calculation formula, step-by-step guide, and expert insights inside.

💼 What is HRA in Salary?

House Rent Allowance (HRA) is a key part of the salary structure for most salaried employees in India. It is provided by employers to help cover rental housing costs and can be claimed as a tax exemption under certain conditions.

With the new financial year 2025-26, changes to the tax regime and stricter compliance norms have brought HRA rules back into focus for taxpayers. This article will help you understand everything about HRA—eligibility, calculation, documentation, and how to claim it under the current laws.

🧾 Who Can Claim HRA in FY 2025-26?

To claim HRA exemption under the Income Tax Act Section 10(13A):

✅ You must be a salaried employee.
✅ You must receive HRA as part of your salary package.
✅ You must live in a rented house and be paying rent.
✅ You must choose the old tax regime, as HRA is not exempt under the new tax regime.

🔄 HRA in Old Tax Regime vs New Tax Regime (2025-26)

🧮 Old Tax Regime: HRA Allowed

You can claim tax exemption on HRA using this formula:

👉 The lowest of the following three is exempt:

1. Actual HRA received
2. 50% of salary (metro cities) / 40% (non-metros)
3. Rent paid minus 10% of salary (basic + DA)

🔔 This is the only way to legally reduce tax using your house rent payments.

❌ New Tax Regime: No HRA Exemption

• The new regime offers lower income tax rates but no HRA deduction.
• From FY 2023-24 onwards, it is the default option.
• To claim HRA, you must opt for the old tax regime while filing your taxes or during your employer’s declaration cycle.

🏙️ Metro vs Non-Metro: What’s Considered Metro?

If you live in one of the following cities, you qualify for 50% of salary as part of the HRA exemption calculation:

• Delhi
• Mumbai
• Kolkata
• Chennai

🛑 Note: Noida, Gurgaon, Hyderabad, and Bengaluru are not considered metros under HRA rules—they fall under the 40% category.

🧾 Documents Required for HRA Exemption

✔️ Rent receipts with landlord’s name and signature
✔️ Rental agreement
✔️ PAN of landlord (if rent > ₹1,00,000 annually)
✔️ Proof of rent payment (bank transfer, UPI logs)

⚠️ Claiming HRA for Rent Paid to Parents or Spouse

Yes, you can legally claim HRA if you’re paying rent to your parents—but only with proper documentation:

📌 A signed rent agreement is a must.
📌 Transfer rent via bank (no cash).
📌 Parents must show the income in their ITR.

💡 Rent paid to spouse is generally disallowed unless there is clear separation of ownership and tenancy, which rarely holds up in scrutiny.

🆕 What’s New in FY 2025-26?

📌 1. New Regime Default: All taxpayers are now by default in the new tax regime—no HRA benefit unless opted out.
📌 2. Increased HRA Claim Scrutiny: Income Tax Department now cross-verifies landlord PAN, rent receipts, and bank transfers.
📌 3. PAN Mandate for Landlord: Rent above ₹8,333/month requires landlord PAN details, else exemption is denied.
📌 4. Digital Submissions: Many employers have moved to digital portals for HRA proof submission.

🧮 How to Calculate HRA – With Example

🧠 Formula:Exempt HRA = Minimum of:

Rent paid – 10% of salary

Actual HRA received

50% (metro) or 40% (non-metro) of salary

🧑‍💼 Example:

• Basic Salary: ₹50,000/month
• HRA Received: ₹20,000/month
• Rent Paid: ₹18,000/month
• City: Chennai (metro)

Calculation:

1. HRA received = ₹2,40,000/year
2. 50% of Salary = ₹3,00,000
3. Rent Paid – 10% of Salary = ₹2,16,000 – ₹60,000 = ₹1,56,000

🟢 HRA Exempt = ₹1,56,000/year
🔴 Taxable HRA = ₹84,000/year

🔄 HRA for Self-Employed Professionals

If you’re not salaried, you cannot claim HRA under Section 10(13A), but you may still get rent deduction under Section 80GG, with a limit of ₹60,000/year.

Conditions:

• Not receiving HRA
• Living in rented home
• No house owned in the city of residence

📊 HRA vs Other Deductions: Which Is Better?

Deduction Type	Section	Old Regime	New Regime
HRA	10(13A)	✅ Yes	❌ No
80C (LIC, PPF etc.)	80C	✅ Yes	❌ No
Standard Deduction	16(ia)	₹50,000	₹75,000
Health Insurance	80D	✅ Yes	❌ No

---

💬 Expert Tip: Old Regime May Save You More

“Salaried employees living in rented homes and investing in tax-saving instruments should evaluate staying in the old regime,” says CA Rajeev Sharma.

💡 Use your employer’s tax declaration portal to choose the old regime between April–June.

🔍 5 Common Mistakes to Avoid in 2025-26

1. ❌ Claiming HRA while owning a house in the same city
2. ❌ Not opting into the old regime
3. ❌ Not submitting landlord PAN for rent > ₹1 lakh
4. ❌ Paying rent in cash without receipts
5. ❌ Fake rent agreements or inflated rent to relatives

📌 Such claims can trigger audit or scrutiny notices under AI-driven tax systems.

✅ Checklist for HRA Claim 2025-26

• Rent receipts & agreement submitted?
• PAN of landlord shared (if applicable)?
• Opted into old tax regime?
• Calculated correct exemption using all 3 rules?
• Rent paid via bank transfer?

📢 Final Word: Is HRA Still Worth It?

Absolutely. House Rent Allowance is one of the last few tax shelters left for the salaried class—especially those living in Tier-1 and Tier-2 cities with high rental costs. With the new tax regime simplifying taxes but removing exemptions, employees must now actively choose their tax planning approach each year.

If you live on rent and invest in 80C/80D instruments, HRA in the old regime is still the most effective way to reduce your tax bill.

---

Stay informed with TalesXP for the latest financial updates, tax rule changes, and salary optimization tips.