Definition
HRA Component
House Rent Allowance is a salary component meant to cover rent that can be partly tax-exempt if you actually pay rent, with the exemption based on a prescribed formula.
The HRA in your salary can be exempt from tax under the old regime if you live in rented accommodation. The exempt amount is the least of: the actual HRA received, rent paid minus 10% of basic, and a percentage of basic (50% for metros, 40% for non-metros).
To claim it you need rent receipts and, above a threshold of annual rent, the landlord's PAN. If you do not pay rent or own your home, HRA is fully taxable. The exemption is not available under the new tax regime.
HRA is one of the most common salary-structuring tools for tax efficiency for those paying rent, so it is worth computing the exemption correctly when filing.
Related terms
- Old vs New Tax RegimeIndia offers two personal income-tax regimes: the old one with various deductions and exemptions, and the new one with lower slab rates but most exemptions removed.
- Basic PayBasic pay is the fixed core component of your salary on which many other components and statutory contributions — like HRA, PF and gratuity — are calculated.
- LTALeave Travel Allowance is a salary component that can be tax-exempt for the cost of travel within India undertaken on leave, subject to conditions and block-year limits.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.