TaxFinancial Glossary
HRA (House Rent Allowance)
Definition
A component of salary paid to employees to cover rental housing expenses. Under Section 10(13A), a portion of HRA is exempt from income tax. The exempt amount is the minimum of actual HRA received, rent paid minus 10% of basic salary, or 50%/40% of basic salary (metro/non-metro).
Why It Matters
HRA exemption is one of the largest tax-saving tools available to salaried individuals in the old tax regime. For someone with Rs 25,000 monthly rent and Rs 50,000 basic salary, the annual HRA exemption can reduce taxable income by Rs 2.4 lakh, saving Rs 50,000-75,000 in tax depending on the slab.