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All-in-one HR platform · v2.0
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All-in-one HR platform · v2.0
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A salary component paid towards the employee's rent. An employee who pays rent can claim part of it as exempt under Section 10(13A) of the Income-tax Act and Rule 2A, the exempt amount being the lowest of three limits worked out from actual HRA, rent paid and salary. The exemption is available only under the old tax regime.
HRA appears in two places in payroll. It is a salary component fixed in the structure, often a share of basic, and it is also the basis for the exemption an employee on the old tax regime claims for rent paid. Payroll calculates the exemption each month from the rent declared, then corrects it once proofs arrive.
Example with illustrative figures: basic is ₹40,000, HRA is ₹16,000 and rent is ₹18,000 in a metro city. The exemption is the least of actual HRA, rent minus 10% of basic, and 50% of basic for a metro, so ₹14,000. The balance ₹2,000 of HRA is taxable.
Common errors include using the wrong city category, accepting rent receipts without the landlord's PAN where the rules require it, and continuing the exemption for employees who switched to the new regime. Check the current exemption rules before each year's declaration window.
Under the old regime, the exempt amount is the least of the HRA actually received, rent paid minus 10% of salary, and 50% of salary for specified metro cities or 40% elsewhere, where salary means basic plus DA forming part of retirement benefits. The balance of HRA is taxable.
No. Under the new regime, HRA is fully taxable, so the exemption only matters for employees who choose the old regime. Check the current position each year, as the Finance Act can change it.
It is generally accepted if the rent is genuinely paid, the parent owns the property and the parent reports the rent as income. Payroll should still collect the same proof as for any other landlord.
Payroll treats the HRA as taxable and deducts TDS accordingly. The employee may still be able to claim the exemption in their own return if they have the evidence.
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