HRA

HRA, or House Rent Allowance, is a part of many salaries meant to cover rent. If you actually pay rent, a portion of your HRA can be tax-free, but only under the old tax regime.

How the exemption is worked out

The tax-free part of HRA is the lowest of three amounts: the actual HRA in your salary, 50% of your basic pay if you live in a metro city (40% elsewhere), and the rent you pay minus 10% of your basic pay. Whichever of those three is smallest is the amount that escapes tax; the rest of your HRA is taxed as normal salary. Because the formula leans on rent and basic pay, two people with the same HRA can get very different exemptions.

What you need to claim it

You must actually pay rent and be able to show it, usually with rent receipts and, where the yearly rent is large, the landlord’s PAN. You cannot claim HRA for a home you own and live in. You can sometimes claim it even while paying a home loan, if you genuinely rent one place and own another, but the facts have to be real.

Only in the old regime

Like most salary deductions, the HRA exemption exists only under the old tax regime. Choose the new regime and HRA is simply taxed as part of your salary, in exchange for lower slab rates. So HRA is one of the things to weigh when comparing the two. For the detail, read HRA and common deductions and confirm the current rule on incometax.gov.in.