Budget 2025: House Rent Allowance And Income Tax Explained In Two Minutes

House Rent Allowance is a component of an employee's salary, offered by employers to help employees cover their rent expenses. HRA is partially or fully exempt from tax, depending on the conditions met by the employee.

To claim HRA exemption, the employee needs to meet certain criteria. These conditions include being a salaried person who is paying rent for a residential property, and receiving HRA as part of their salary.

HRA is a part of your salary income. So, it is initially considered a part of your taxable income. However, if you live in a rented accommodation, you can claim a tax exemption. One can either do a partial or whole claim under Section 10 of the Income Tax Act.

It is important to note that this is if one does not live in a rented accommodation, this allowance is fully taxable. This also does not apply as a claim to people who are self-employed, but they can avail tax deductions towards the rented accommodation, according to Clear Tax.

To claim this exemption, the employee must submit a rent receipt or lease agreement, providing proof of rent paid. Additionally, if the rent is paid to a family member, it is subject to certain conditions, and the taxability may differ.

HRA exemptions can significantly reduce an employee’s tax liability, especially for those living in cities with high rent costs. The HRA exemption calculation will depend on factors like salary, rent paid, HRA received by the employee and city of residence.

It's important to note that employees should maintain proper documentation and ensure they meet the eligibility requirements to benefit from HRA exemptions effectively.