HRA Tax Exemption Explained: Save up to ₹1.5 Lakh Even Without Paying Rent to a Landlord for FY25

House Rent Allowance (HRA) is a component of a salaried employee’s income designed to provide tax relief if the individual resides in a rented house. Under Section 10(13A) of the Income Tax Act, a portion of HRA can be exempted from income tax, subject to certain conditions.

Can You Claim HRA Without Paying Rent to a Traditional Landlord?

Yes, under the provisions of the Income Tax Act, even if you reside in a property owned by your parents or relatives, you may still claim HRA exemption—provided rent is genuinely paid and all conditions are met.

Conditions to Claim HRA While Living with Parents or Relatives

To lawfully claim HRA in such a setup, the following rules must be observed:

Property Ownership

The house should not be registered in your name. It must legally belong to your parent(s) or relative to whom you are paying rent.

Actual Rent Payment

Rent must be paid regularly and not just on paper. Payments should ideally be made via bank transfer or cheque to create a clear transaction trail.

Rent Agreement

Draft a formal rent agreement stating the rent amount, duration, and terms. This adds credibility to your claim and is useful during scrutiny.

Rent Receipts

Collect monthly rent receipts as evidence. These may be requested by your employer or during income tax assessment.

Tax Implication for the Recipient

The rent paid to your parents or relatives is considered their income and must be reported in their Income Tax Return (ITR). However, if your parents are senior citizens and their income falls below the basic exemption limit, they may not be liable to pay tax on it.

HRA Exemption Calculation: 3 Key Factors

The exempt portion of HRA is determined by the lowest of the following:

1. Actual HRA received from your employer during the financial year.

2. Rent paid minus 10% of your salary (basic + DA).

3. 50% of salary if you live in a metro city (like Mumbai or Delhi) or 40% for non-metros

Let’s update and explain the HRA exemption calculation step by step for Mr. XYZ

Location: Mumbai (a metro city) → eligible for 50% limit (metro cities get 50%, others get 40%)

Basic Salary: ₹50,000 per month → ₹6,00,000 per annum

DA (Dearness Allowance): ₹5,000 per month → ₹60,000 per annum (forms part of salary)

HRA Received: ₹1,50,000 annually

Rent Paid: ₹25,000 per month → ₹3,00,000 per annum

To calculate the HRA exemption for Mr. XYZ under Section 10(13A), the following 3 conditions are evaluated, and the least of these is allowed as an exemption:

1. Actual HRA received – Mr. XYZ received ₹1,50,000 as HRA from his employer during the financial year.

2. 50% of salary (basic + DA) – Since he resides in Mumbai, a metro city, 50% of his annual salary (₹6,00,000 basic + ₹60,000 DA) amounts to ₹3,30,000.

3. Rent paid minus 10% of salary – The annual rent paid is ₹3,00,000, and 10% of his salary (₹6,60,000) is ₹66,000, so the excess rent paid comes to ₹2,34,000.

Among the 3, the lowest is ₹1,50,000, which is fully exempt from income tax.

This means you could potentially claim up to ₹1.5 lakh or more as exempt from tax if the conditions and supporting documents are in place.

Read More: HRA Tax Exemption: Can You Claim It for Society Maintenance Charges?

What About the Self-Employed?

It’s important to note that self-employed individuals are not eligible for HRA under Section 10(13A). However, they can claim rent-related deductions under Section 80GG, subject to separate conditions.

Conclusion

Living with your parents or relatives doesn’t disqualify you from claiming HRA exemption—as long as you’re genuinely paying rent and maintaining proper documentation. This provision offers a significant tax-saving opportunity for salaried individuals, particularly when structured correctly and in full compliance with tax rules.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions. 

Investments in the securities market are subject to market risks, read all the related documents carefully before investing.