House Rent Allowance exemption remains one of the most valuable tax deductions available under the old income tax regime for salaried employees. For FY26-27, the HRA exemption is calculated as the minimum of three amounts: actual HRA received from the employer, 50% of basic salary plus dearness allowance for metro city residents (or 40% for non-metro residents), and actual rent paid minus 10% of basic salary plus DA.
To claim HRA exemption, employees must submit rent receipts to their employer by February 2026 for TDS purposes. Rent receipts should include the landlord's name, address, rent period, amount paid and signature. If annual rent paid exceeds Rs 1 lakh, the landlord's PAN must be furnished. Employees living in their own homes or not paying rent cannot claim HRA, while those with both home loan interest deduction and HRA can claim both simultaneously if the rented home and owned property are in different cities.
A common pitfall is families where rent is paid to parents — this is legally permissible and tax-efficient only if the parent actually declares the rental income in their own ITR. The arrangement must be genuine with proper rental agreement and bank transfers rather than cash payments. Employees must furnish Form 10BA if claiming HRA while also claiming deduction under Section 80GG (for those without HRA in salary). Keep records of all rent transactions for at least 7 years in case of scrutiny assessment.
