Can I Claim HRA in the New Tax Regime?
The new tax regime is an alternative to the old tax system. It offers lower tax rates but removes many deductions and exemptions. One of the key exemptions not available in the new regime is House Rent Allowance (HRA). HRA helps salaried individuals lower their taxable income if they live in rented homes.
Since the budget brings changes in tax slabs, many taxpayers wonder if shifting to the new tax regime is beneficial. In this article, we will explain how the HRA exemption works and help you choose the best option for FY 2024-25.
Table of Contents
Budget 2025: Taxation Changes That Affect You
The Union Budget 2025 has introduced major changes in the income tax structure. Here are the key highlights:
1. Increased Basic Exemption Limit
The exemption limit is now ₹4 lakh, up from ₹3 lakh. This means individuals earning up to ₹4 lakh annually do not have to pay any income tax.
2. New Tax Slabs
Annual Income (₹) | Tax Rate |
Up to 4,00,000 | Nil |
4,00,001 to 8,00,000 | 5% |
8,00,001 to 12,00,000 | 10% |
12,00,001 to 16,00,000 | 15% |
16,00,001 to 20,00,000 | 20% |
20,00,001 to 24,00,000 | 25% |
Above 24,00,000 | 30% |
3. Previous Tax Slabs for FY 2024-25
Annual Income (₹) | Tax Rate |
Up to 3 Lakh | Nil |
3 - 7 Lakh | 5% |
7 - 10 Lakh | 10% |
10 - 12 Lakh | 15% |
12 - 15 Lakh | 20% |
Above 15 Lakh | 30% |
4. Revised Standard Deduction
Salaried individuals now get a standard deduction of ₹75,000 (earlier ₹50,000). This helps reduce taxable income.
5. Full Tax Rebate for Income Up to ₹12 Lakh
Individuals earning up to ₹12 lakh get a full rebate under Section 87A. This means they do not have to pay any tax.
HRA Exemption in the New Tax Regime
HRA is an essential part of an employee’s salary package. It is provided to cover rental expenses. If you live in a rented house, HRA can reduce your taxable income significantly.
Under the old tax regime, employees could claim an exemption under Section 10(13A) of the Income Tax Act. But in the new tax regime, this exemption is not available.
Employees who choose the new tax regime must pay tax on the full HRA received. This is an important factor to consider before switching.
Eligibility Criteria for HRA Exemption (Old Tax Regime Only)
To claim HRA exemption under the old regime, you must:
Be a salaried employee receiving HRA.
Live in a rented house (not self-owned).
Provide rent receipts as proof.
Submit the landlord’s PAN if rent exceeds ₹1 lakh per year.
Ensure that rent paid is above 10% of the basic salary to qualify for tax benefits.
Be able to produce valid rental agreements in case of an audit or tax assessment.
HRA Exemption Calculation
The HRA exemption is the minimum of these three values:
Actual HRA received from the employer
50% of Basic Salary (for metro cities) or 40% (for non-metro cities)
Rent paid - 10% of Basic Salary
Example: HRA Exemption Calculation
Let’s say Ankit is a salaried employee living in Mumbai. His salary details are:
Particulars | Amount (₹) |
Basic Salary | 50,000 per month |
HRA Received | 20,000 per month |
Rent Paid | 18,000 per month |
City of Residence | Mumbai (Metro) |
HRA Exemption Calculation
Calculation Method | Amount (₹) |
Actual HRA Received | 20,000 |
50% of Basic Salary (since Mumbai is Metro) | 25,000 |
Rent Paid - 10% of Basic Salary | 18,000 - 5,000 = 13,000 |
Since the lowest value is ₹13,000 per month (₹1,56,000 annually), Ankit can claim this amount as an exemption under the old tax regime.
Documents Required for HRA Exemption
To claim HRA under the old regime, keep these documents ready:
Rent Receipts signed by the landlord.
Rental Agreement (if required by the employer).
Bank Statements showing rent payments.
Form 12BB for investment declaration.
Landlord’s PAN (if rent exceeds ₹1 lakh annually).
How to Claim HRA While Filing ITR
Through Employer: Declare HRA details at the beginning of the year to include them in Form 16.
Direct ITR Filing: If not declared earlier, manually enter the exempt amount while filing ITR.
Using Online Tax Portals: Automated calculations help claim HRA deductions easily.
Keep Documents for Scrutiny: Retain rent receipts for at least six years for verification.
FAQs
1. Can I claim HRA in the new tax regime?
No, HRA exemption is not allowed under the new tax regime. If you opt for the new tax system, you must pay tax on the entire HRA received.
2. Can I still receive HRA in my salary under the new tax regime?
Yes, your employer will continue to provide HRA as part of your salary structure. However, since the exemption is not available in the new regime, the entire amount will be taxable.
3. How does the loss of HRA exemption impact salaried employees?
Without HRA exemption, your taxable income increases, leading to a higher tax liability if you previously relied on HRA deductions to reduce your tax burden.
4. Who should choose the old tax regime over the new one?
If you have significant exemptions such as HRA, 80C (PF, PPF, ELSS), 80D (medical insurance), and home loan interest, the old tax regime is likely more beneficial. The new tax regime is better suited for those who do not have many deductions.
5. What if I mistakenly opt for the wrong tax regime?
You can revise your Income Tax Return (ITR) before the due date. Salaried employees can switch between tax regimes every financial year, but individuals with business income can switch only once.
6. Can freelancers or self-employed individuals claim HRA?
No, HRA is only available to salaried individuals. However, self-employed individuals can claim rent expenses under Section 80GG, which has specific conditions.
7. Can I claim HRA if I stay with my parents?
Yes, but you must have a rental agreement and provide proof of rent payments to your parents. Your parents must also declare this rental income in their ITR.
8. What happens if I do not provide rent receipts?
Without rent receipts, you may not be eligible for an HRA exemption under the old tax regime. Employers often require them to process claims.
9. Is there a limit on the amount of rent I can claim for HRA?
No upper limit exists, but the claim must be reasonable based on your salary and rental expenses.
10. Can I claim both HRA and deductions under Section 80C?
Yes, under the old tax regime, you can claim HRA along with deductions like 80C, 80D, and home loan interest deductions.
11. What if my landlord does not have a PAN?
If your annual rent exceeds ₹1 lakh, you must provide your landlord’s PAN. If unavailable, a signed declaration may be required.
12. Can NRIs claim HRA exemption?
Yes, NRIs earning salary income in India and living in rented homes can claim HRA exemption under the old tax regime.
13. Can I switch between tax regimes every year?
Yes, salaried employees can choose between the old and new tax regimes every financial year.
14. How do I calculate my tax liability under both regimes?
You can use an income tax calculator to compare your tax liability under both regimes by inputting your salary, HRA, rent paid, and deductions.
15. What are the tax-saving alternatives in the new tax regime?
Although most exemptions are removed, you can still save taxes through the higher standard deduction, employer contributions to the National Pension System (NPS) under Section 80CCD(2), and lower tax rates.
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