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HRA Exemption Explained

For salaried employees, House Rent Allowance (HRA) serves as a significant means to save on taxes. However, with the introduction of the new tax regime, many individuals are uncertain about the current status of HRA tax exemptions. Additionally, questions arise regarding the possibility of claiming HRA exemptions alongside home loan deductions. If you are employed and looking to minimize your tax liabilities, this information is crucial for you. Here, we clarify the implications of adopting the new tax system on HRA and how it is calculated under the old tax framework.

Is HRA Exemption Available in the New Tax Regime?

Choosing the new tax system means that no tax exemption is available for HRA. Under Section 115BAC, the exemption for HRA has been eliminated. This new system also does not allow for various other deductions, including those for Leave Travel Concession (LTC), interest on home loans, children's education allowances, and deductions under Section 80C.

Can HRA and Home Loan Deductions Be Claimed Together?

In the old tax system, it was possible to claim deductions for both HRA and home loan interest. If you are renting a home due to your job while also servicing a loan on your own property, you could benefit from tax relief on both. However, you must demonstrate that you do not reside in the house for which the loan is taken, and that family members live there or that it has been rented out.

How is HRA Exemption Calculated?

In the previous tax regime, the HRA exemption is determined based on the lowest of the following three amounts:

• The actual HRA received from the employer


• 50% or 40% of salary if residing in a metro city


• Annual rent exceeding 10% of salary

For instance, if your annual basic salary is ₹8 lakh, your annual rent is ₹3.6 lakh, and your HRA is ₹3.2 lakh, the tax exemption would be ₹2.8 lakh. By strategically planning your HRA and home loan deductions, you can achieve significant tax savings each year. However, in the new tax regime, these exemptions are not available, so make your selection wisely.

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