Sec 10(13A) HRA exemption — the rent-receipt + landlord-PAN walk-through
HRA exemption, available only in the old regime, is the least of three amounts: HRA received, rent paid minus 10% of salary, and 50% of salary in a metro or 40% elsewhere. From TY 2026-27 the Income-tax Rules 2026 treat eight cities as metros: Delhi, Mumbai, Kolkata, Chennai, Bengaluru, Hyderabad, Pune and Ahmedabad.
The three-formula minimum
HRA exemption = the minimum of:
- Actual HRA received from employer
- Rent paid minus 10% of salary (basic + DA)
- 50% of salary (basic + DA) if in a metro, else 40%. Metros: Mumbai, Delhi, Kolkata, Chennai up to FY 2025-26; from TY 2026-27 also Bengaluru, Hyderabad, Pune and Ahmedabad
Up to FY 2025-26, "metro" for HRA meant only those four cities. From TY 2026-27, Rule 279 of the Income-tax Rules 2026 adds Bengaluru, Hyderabad, Pune and Ahmedabad; Gurgaon, Noida and other cities stay at 40%.
Worked example (Chennai)
| Component | Annual |
|---|---|
| Basic + DA | ₹6,00,000 |
| HRA received | ₹2,40,000 |
| Rent paid | ₹3,00,000 (₹25K/mo) |
- Formula 1: ₹2,40,000
- Formula 2: ₹3,00,000 − ₹60,000 (10% of basic) = ₹2,40,000
- Formula 3: 50% × ₹6,00,000 = ₹3,00,000 (Chennai is metro)
Minimum = ₹2,40,000 → fully exempt. The taxable HRA in this case is ₹0.
The landlord PAN rule — ₹1 L annual rent
If your annual rent exceeds ₹1 lakh (₹8,333/month average), you must furnish the landlord's PAN to your employer's payroll team. Without it, the employer is required to withhold TDS u/s 194I from your HRA disbursement and disallow the HRA exemption in Form 16.
What if the landlord doesn't have a PAN or refuses to share?
- Get a written declaration from landlord under Notification 8/2013 stating no PAN held + reason
- Employer can accept the declaration in lieu of PAN — but most refuse (audit risk)
- If declaration is rejected, claim HRA exemption directly in your ITR (not in Form 16) with a self-declaration of rent paid. The AO may scrutinise.
Rent receipts — what they must contain
For every month / quarter of rent paid:
- Date, period covered
- Landlord name + address + PAN (if rent > ₹1 L p.a.)
- Tenant name (you)
- Property address
- Rent amount, payment mode (cheque / NEFT / cash — but cash is risky above ₹2,000/transaction under Sec 269ST)
- Revenue stamp ₹1 if rent paid in cash above ₹5,000/instance (rarely enforced but technically required)
Some employers require all 12 months of receipts at year-end (Feb-March); others ask for quarterly proofs. Maintain a folder; it's the first document at any HRA scrutiny.
The 2 most common employer-side errors
1. Treating "Bangalore" as metro for HRA
Many MNC payroll teams default to 50% HRA for Bangalore, Hyderabad, Pune. This is wrong — Sec 10(13A) lists only the 4 metros. Excess HRA exemption claimed via Form 16 is reversed at scrutiny.
2. Computing HRA on "gross salary" instead of "basic + DA"
The denominator in formulas 2 and 3 is basic + DA (where DA forms part of retirement benefits). Including HRA, special allowance, LTA in the salary base inflates the exemption and triggers a reversal. Some employers include "fixed CTC" — wrong.
Sec 80GG — the HRA-less alternative
What if you don't receive HRA (you're a freelancer, your CTC doesn't have HRA, or you live in a self-owned house and your spouse pays rent for office)? Sec 80GG allows deduction for rent paid, capped at the minimum of:
- ₹5,000 per month (₹60K p.a.)
- 25% of total income
- Rent paid minus 10% of total income
Conditions: you must not receive HRA from any employer in the year. You must not own residential property in the city of your work. You file declaration in Form 10BA with your ITR.
For most salaried filers receiving HRA, Sec 10(13A) gives 5-10× more benefit. Sec 80GG is a fallback for freelancers, business owners, and the rare salaried person on CTC structures without HRA.
📌 Self-rent to relative trick — be careful: Some filers rent from a parent or spouse to claim HRA. The Income Tax Department's view: rent must be a genuine arms-length transaction. The landlord (your relative) must include it as house property income in their ITR. Anything obviously circular (you pay parents ₹50K/mo, they declare it, send back via gift) is sham. We've seen the AO disallow such HRA claims with penalty.
FA 2025 / new regime impact
HRA exemption is an old-regime-only benefit. Switched to new regime → no HRA. With the FA 2025 Sec 87A rebate now covering up to ₹12 L taxable income, many salaried filers find the new regime wins even after losing HRA. Run the math on our regime calculator.
The Finclar take
HRA is one of the cleanest old-regime exemptions if your basic + DA is structured well (40%+ of CTC). The recurring failures: weak rent receipts (no PAN, no signature), employer using wrong denominator, claiming Bangalore/Pune as metro. Audit your last Form 16 — if HRA exempt is materially less than what the formula suggests, your payroll team has a structural error. Worth a 30-minute conversation with HR before next year's tax structure.