Section 10(13A) HRA: The Three-Way Minimum Formula Walked Through With FY 2025-26 Numbers
Section 10(13A) exempts the least of three figures from your HRA. Here is the formula, a worked Mumbai example, and the four mistakes that wipe out the exemption in scrutiny.
House Rent Allowance is often the largest exemption on a salaried payslip, yet a CBDT analysis of FY 2023-24 ITR-1 returns showed nearly 18% of HRA claims are partially or fully disallowed in CPC processing. The reason is almost always the same: the taxpayer claimed the full HRA received instead of the least of three figures that Section 10(13A) of the Income-tax Act, 1961 actually permits. With the new tax regime now the default for FY 2025-26 (AY 2026-27), HRA is also a regime-switch decision — Section 115BAC withdraws the exemption entirely, so anyone still claiming HRA must consciously opt into the old regime under Section 115BAC(6).
This tip walks through the statutory formula, a worked example for a Mumbai employee on Rs 18 lakh CTC, the four mistakes that recur in scrutiny, and the documentary trail. Every figure ties back to the bare Act, Rule 2A of the Income-tax Rules, 1962, or CBDT Circular No 8/2013.
What the Section Says
Section 10(13A) reads — in substance — that any special allowance specifically granted by the employer to meet expenditure actually incurred on payment of rent for residential accommodation occupied by the assessee shall be exempt to the extent prescribed under Rule 2A of the Income-tax Rules, 1962. Rule 2A then prescribes the famous three-way minimum: the exempt portion is the least of the following three figures, computed for the period during which the accommodation was actually occupied.
| Limb | What it captures |
|---|---|
| (a) Actual HRA received | The HRA component on your payslip for the relevant months |
| (b) Rent paid minus 10% of salary | Your out-of-pocket rent net of a notional self-contribution |
| (c) 50% of salary (metro) or 40% of salary (non-metro) | A statutory ceiling pegged to your basic pay |
Three definitional points are non-negotiable. First, "salary" for HRA purposes under Rule 2A means basic pay plus dearness allowance (only the part forming retirement benefits) plus any commission expressed as a fixed percentage of turnover — it does not include other allowances, bonuses, or LTA. Second, only four cities qualify as "metro" for the 50% limb: Mumbai, Delhi, Kolkata and Chennai. Bengaluru, Hyderabad, Pune, Ahmedabad and the NCR satellite towns of Gurugram, Noida and Faridabad are all 40% cities, a position confirmed by the ITAT Bangalore in Pradeep Kumar v. ITO [2014]. Third, the exemption is strictly old-regime only — Section 115BAC(2)(i) lists Section 10(13A) among the exemptions disallowed in the new regime, so anyone defaulting into the new regime forfeits the entire HRA claim.
The regime arithmetic matters because the new regime's standard deduction of Rs 75,000 plus the enhanced Section 87A rebate of Rs 60,000 (for total income up to Rs 12 lakh) often beats a high HRA claim under the old regime. Run both legs through our Old vs New Tax Regime calculator before you lock the choice in Form 10-IEA.
Worked Example
Take Anita, a product manager based in Mumbai with the following FY 2025-26 salary structure for the full 12 months:
| Component | Annual (Rs) | Monthly (Rs) |
|---|---|---|
| Basic pay | 9,00,000 | 75,000 |
| Dearness allowance (forming part of retirement benefits) | 60,000 | 5,000 |
| HRA received | 4,80,000 | 40,000 |
| Special allowance | 3,00,000 | 25,000 |
| LTA | 60,000 | 5,000 |
| Gross CTC | 18,00,000 | 1,50,000 |
Anita rents a 1BHK in Andheri East at Rs 38,000 per month, totalling Rs 4,56,000 for the year. Her landlord's PAN is on the rental agreement. Now apply Rule 2A.
Salary for HRA = Basic + DA (retirement) = 9,00,000 + 60,000 = Rs 9,60,000
| Limb | Computation | Amount (Rs) |
|---|---|---|
| (a) Actual HRA received | As per payslip | 4,80,000 |
| (b) Rent paid - 10% of salary | 4,56,000 - 96,000 | 3,60,000 |
| (c) 50% of salary (Mumbai is metro) | 50% x 9,60,000 | 4,80,000 |
The least is Rs 3,60,000, so Anita's HRA exemption under Section 10(13A) is Rs 3,60,000. The taxable balance of Rs 1,20,000 (4,80,000 - 3,60,000) gets added back to her gross salary. Limb (b) is binding for her — her rent is high enough to consume more than 10% of salary but not high enough to exhaust the metro 50% ceiling. If her rent rose to Rs 48,000 per month (Rs 5,76,000 a year), limb (b) would jump to Rs 4,80,000, tying with limb (c), and her full HRA of Rs 4,80,000 would be exempt.
The regime test still has to clear. Under the old regime, after also claiming Rs 1,50,000 under Section 80C, Rs 50,000 standard deduction, and Rs 25,000 under Section 80D, Anita's tax liability lands at roughly Rs 2.10 lakh. Under the new regime — no HRA, no 80C, but a Rs 75,000 standard deduction and slabs that top out at 30% only beyond Rs 24 lakh — her liability is roughly Rs 1.95 lakh. The new regime wins by Rs 15,000 despite the HRA loss. Plug your own numbers into our Income Tax Calculator to see where the cross-over sits for your CTC.
Common Mistakes
Mistake 1 — Treating Bengaluru, Pune or Gurugram as metros. This is the single most frequent CPC adjustment. The four-city metro list for HRA is settled, and the ITAT has consistently rejected attempts to extend it. A Bengaluru-based assessee earning the same Rs 9,60,000 salary would have a limb (c) ceiling of Rs 3,84,000 (40%), not Rs 4,80,000. The error usually shows up when taxpayers conflate the HRA metro definition with the X/Y/Z city framework used by the Seventh Pay Commission for central government employees — the two are unrelated for Section 10(13A) purposes.
Mistake 2 — Including DA, special allowance or bonus in "salary". Rule 2A is unambiguous: only basic, DA forming part of retirement benefits, and turnover-linked commission count. Adding the special allowance of Rs 3,00,000 to Anita's salary base would inflate her limb (c) to Rs 6,30,000 and limb (b)'s 10% deduction to Rs 1,26,000 — both incorrect. The Bombay High Court reaffirmed this narrow reading in CIT v. Gestetner Duplicators [1979].
Mistake 3 — Skipping the landlord PAN when rent exceeds Rs 1 lakh per annum. CBDT Circular No 8/2013 dated 10 October 2013 mandates that if annual rent exceeds Rs 1,00,000, the employee must furnish the landlord's PAN to the employer in Form 12BB. If the landlord refuses or has no PAN, a self-declaration with the landlord's name and address is acceptable, but the employer must report the case. Anita's annual rent of Rs 4,56,000 is well past the threshold, so PAN reporting is mandatory. The Delhi ITAT in Aravinda Reddy M. v. ITO held that absence of landlord PAN, without a satisfactory explanation, is sufficient ground to disallow HRA on scrutiny.
Mistake 4 — Claiming HRA while living in your own house, or paying rent to a spouse who has no independent source. HRA requires that you actually pay rent for accommodation occupied by you. Paying rent to your spouse — when the property is held in joint names funded entirely by you — has been struck down by the ITAT Mumbai in multiple rulings. Paying rent to a parent who genuinely owns the house and reports the rental income in their own ITR is permitted (per the Delhi ITAT in Bajrang Prasad Ramdharani v. ACIT [2013]) but the trail must be impeccable: registered rent agreement, bank transfers, parent's ITR showing the income under "Income from House Property".
Documentation Checklist Before You File ITR
- Form 16 Part B showing the HRA exemption already given by the employer.
- Rent receipts (or bank transfer evidence) for each month claimed.
- Registered or notarised rent agreement for the relevant period.
- Landlord PAN if annual rent crosses Rs 1,00,000 — declared in Form 12BB.
- TDS under Section 194-IB at 2% if monthly rent exceeds Rs 50,000 — deducted in March (or last month of tenancy) and deposited via Form 26QC within 30 days. The 2% rate applies from 1 October 2024 onwards, reduced from the earlier 5%.
If you missed claiming HRA in your original return, you can still recover it by filing a revised return under Section 139(5) before 31 December 2026 for AY 2026-27 — see our walkthrough on revised vs belated returns for the procedure.
FAQ
Can I claim HRA if my employer does not show it as a separate component on my payslip?
No. Section 10(13A) requires that the allowance be "specifically granted" by the employer to meet rent expenditure. If your CTC is structured as a single "consolidated salary" with no HRA line item, you cannot carve out an HRA exemption retrospectively. Your alternative is Section 80GG, which allows a deduction up to Rs 5,000 per month or 25% of total income (whichever is less, subject to rent paid exceeding 10% of total income), but only for those without HRA.
What if I changed jobs or cities mid-year?
Rule 2A computes the exemption separately for each period during which the salary structure or city of residence remained constant. So a Bengaluru-to-Mumbai transfer in October 2025 means two computations: April-September on the 40% metric, October-March on the 50% metric. CPC processing now requires a period-wise breakdown in the HRA worksheet annexed to ITR-2.
Is rent paid to parents allowed for HRA exemption?
Yes, provided three conditions are met. The parent must legally own the property, you must pay rent through verifiable banking channels, and the parent must declare the rent as "Income from House Property" in their own ITR. The Delhi ITAT in Bajrang Prasad Ramdharani v. ACIT permitted such a claim where the trail was complete. Cash-only rent to a parent who does not file ITR will fail in scrutiny.
What is the Section 194-IB TDS obligation if my rent exceeds Rs 50,000 per month?
Under Section 194-IB, an individual or HUF (not subject to tax audit) paying rent above Rs 50,000 per month must deduct TDS at 2% on the entire annual rent, deposit it via Form 26QC within 30 days from the end of the month in which deduction is made, and issue Form 16C to the landlord. The 2% rate is effective from 1 October 2024; rent paid before that date attracts the older 5% rate.
Can I switch to the old regime midway through the year if I forgot to claim HRA?
For salaried taxpayers without business income, the old regime can be opted into at the time of filing the ITR for AY 2026-27 itself — Form 10-IEA is needed only if you have business income and want to opt out of the new default. So if your employer deducted TDS assuming the new regime but you discover that the old regime saves more after counting HRA + 80C + 80D, you can simply file ITR-1 or ITR-2 under the old regime and claim a refund. The window closes on 31 July 2026 (or 31 December 2026 for a belated return).
Where does HRA fit on the broader tax-saving picture for FY 2025-26?
For old-regime taxpayers in metro cities, the HRA exemption typically dwarfs the Section 80C limit of Rs 1.5 lakh and even the combined 80C + 80D + 80CCD(1B) trio (and remember, 80CCD(1B) is NOT allowed in the new regime — only the old). A Mumbai or Delhi tenant on a Rs 24 lakh CTC with reasonable rent can comfortably claim Rs 6-8 lakh of HRA exemption. That single number is what keeps the old regime viable for the urban salaried — once you remove HRA, the new regime's wider slabs and higher rebate almost always win. Reconcile your TDS and AIS via our note on 26AS vs AIS reconciliation before locking in either regime.
Sources & Citations
- Income-tax Act, 1961 — Section 10(13A) — Income Tax Department, Government of India
- Income-tax Rules, 1962 — Rule 2A — Income Tax Department, Government of India
- CBDT Circular No 8/2013 on landlord PAN reporting — Central Board of Direct Taxes
- Bajrang Prasad Ramdharani v. ACIT — ITAT on rent paid to parents — Indian Kanoon
Frequently Asked Questions
Can I claim HRA if my employer does not show it as a separate component on my payslip?
No. Section 10(13A) requires the allowance to be specifically granted by the employer to meet rent expenditure. If your CTC is structured as a single consolidated salary with no HRA line item, you cannot carve out an HRA exemption retrospectively. Your alternative is Section 80GG, which allows a deduction up to Rs 5,000 per month or 25% of total income (whichever is less), subject to rent paid exceeding 10% of total income.
What if I changed jobs or cities mid-year?
Rule 2A computes the exemption separately for each period during which the salary structure or city of residence remained constant. A Bengaluru-to-Mumbai transfer in October 2025 means two computations: April-September on the 40% metric, October-March on the 50% metric. CPC processing now requires a period-wise breakdown in the HRA worksheet annexed to ITR-2.
Is rent paid to parents allowed for HRA exemption?
Yes, provided three conditions are met. The parent must legally own the property, you must pay rent through verifiable banking channels, and the parent must declare the rent as Income from House Property in their own ITR. The Delhi ITAT in Bajrang Prasad Ramdharani v. ACIT permitted such a claim where the trail was complete. Cash-only rent to a parent who does not file ITR will fail in scrutiny.
What is the Section 194-IB TDS obligation if my rent exceeds Rs 50,000 per month?
Under Section 194-IB, an individual or HUF not subject to tax audit paying rent above Rs 50,000 per month must deduct TDS at 2% on the entire annual rent, deposit it via Form 26QC within 30 days from the end of the month in which deduction is made (typically March), and issue Form 16C to the landlord. The 2% rate is effective from 1 October 2024; rent paid before that date attracts the older 5% rate.
Does HRA exemption survive if I work from a hometown different from my official posting?
The assessing officer looks at where the rent is actually being paid and where you actually reside. Post-COVID rulings have allowed HRA where the employee was demonstrably working remotely from a rented home, even if the employer's office is in a different city. Key evidence is the rent agreement, utility bills in your name, and ideally a work-from-home certificate from your employer for the relevant period.
Can I switch to the old regime midway through the year if I forgot to claim HRA?
For salaried taxpayers without business income, the old regime can be opted into at the time of filing the ITR for AY 2026-27 itself. Form 10-IEA is needed only if you have business income and want to opt out of the new default. So if your employer deducted TDS assuming the new regime but you discover the old regime saves more after counting HRA, 80C and 80D, you can file ITR-1 or ITR-2 under the old regime and claim a refund. The window closes on 31 July 2026, or 31 December 2026 for a belated return under Section 139(4).
Where does HRA fit on the broader tax-saving picture for FY 2025-26?
For old-regime taxpayers in metro cities, the HRA exemption typically dwarfs the Section 80C limit of Rs 1.5 lakh and even the combined 80C plus 80D plus 80CCD(1B) trio. Remember, 80CCD(1B) is NOT allowed in the new regime, only in the old. A Mumbai or Delhi tenant on a Rs 24 lakh CTC with reasonable rent can comfortably claim Rs 6 to 8 lakh of HRA exemption. That single number is what keeps the old regime viable for the urban salaried.