Indian Income Tax Return Update: Claiming HRA Exemption when Filing ITR
Income Tax Rules Expanded to Include More Cities for HRA Exemption
House Rent Allowance (HRA) is a crucial component of an employee's salary structure, provided by employers to help meet house rent expenses. Beyond being a financial benefit, HRA also serves as an effective tax-saving tool. The New Income Tax Rules, 2026, has expanded the list of metro cities eligible for HRA exemption up to 50 percent of their salary.
The updated list now includes Bengaluru, Hyderabad, Pune, and Ahmedabad, in addition to the existing cities of Mumbai, Delhi, Chennai, and Kolkata. As a result, salaried individuals residing in these cities will be eligible to claim HRA exemption up to 50 percent of their salary from the financial year 2027.
It is essential to note that the HRA exemption is available only under the Old Tax regime. To claim the exemption, employees need to submit their rental expense details along with documentary proof such as rent receipts to their employer. The employer will then reflect the exemption in Form 16, which is required to be submitted at the time of filing Income Tax Return (ITR).
Understanding HRA Exemption
HRA, or House Rent Allowance, is a component of an employee's salary provided by employers to help cover rental accommodation expenses. Under Section 10(13A) of the Income Tax Act, salaried individuals residing in rented accommodation can claim a partial tax exemption on HRA while opting for the old tax regime.
The HRA exemption amount is calculated as the lowest of the following:
| Option | Calculation |
|---|---|
| 50% of salary | 50% of the employee's basic salary |
| Actual rent paid | The actual rent paid by the employee |
| Actual rent paid minus 10% of salary | The actual rent paid minus 10% of the employee's basic salary |
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By understanding the HRA exemption rules, salaried individuals can effectively plan their taxes and make the most of this tax-saving tool.
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