HRA Exemption in New Tax Regime: Explore Exemption for FY 2024-25
Updated: Feb 18
The new tax regime is an alternative to the old system with revised tax slabs and a higher basic exemption limit. However, it does not allow many deductions and exemptions, including House Rent Allowance (HRA). HRA helps salaried individuals reduce their taxable income if they live in rented houses. This was a major benefit in the old tax regime. It is important to understand how this change affects taxpayers for FY 2024-25 to make a well-informed decision.
With the budget bringing changes to tax slabs, many salaried professionals are wondering if the new tax regime is worth switching to. In this article, we will break down the impact on HRA claims and help you choose the best option for FY 2024-25.
Table of content
Budget 2025: Major Updates That Impact Your Taxation
The Union Budget 2025 brought significant changes to the income tax structure, aiming to simplify the tax system and provide relief to taxpayers. Here are the key highlights:
Higher Basic Exemption Limit: The basic exemption limit has been raised to ₹4 lakh from ₹3 lakh, meaning individuals earning up to ₹4 lakh annually do not have to pay any income tax under the new regime.
Modified Tax Slabs: The income tax slabs have been adjusted to reduce the tax burden on individuals.
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% |
Standard Deduction Revised: The standard deduction has increased from ₹50,000 to ₹75,000, providing additional relief to salaried individuals.
Tax Rebate under Section 87A: Individuals with taxable income up to ₹12 lakh are eligible for a full tax rebate, reducing their tax liability to zero.
Understanding HRA Exemption in New Tax Regime
House Rent Allowance (HRA) is an important part of an employee's salary package. It helps employees manage their rental expenses and also provides a tax benefit. If you do not own a house and live in a rented property, HRA can reduce your taxable income and lower your tax burden. Employers include HRA in salary packages, particularly for those working in cities where the cost of living is high.
The amount of HRA varies based on factors like your salary, company policy, and where you live. Under the old tax regime, employees could claim an exemption on HRA under Section 10(13A) of the Income Tax Act, 1961. This meant that a part of the HRA was tax-free, reducing the total taxable salary. However, in the new tax regime, this exemption is no longer available. Employees who opt for the new tax regime must pay tax on the full amount of HRA they receive.
Because of this change, it is important for salaried individuals to compare their options before choosing a tax regime. If you rely on deductions like HRA to lower your tax liability, the old tax regime might still be beneficial. However, if you prefer a simpler system with lower tax rates and fewer exemptions, the new regime could be the right choice for you.
Eligibility Criteria for Claiming HRA Tax Exemption
To claim HRA exemption under the old tax regime, an individual must meet the following conditions:
Must be a salaried employee: HRA is only available to salaried individuals receiving this allowance.
Must be living in a rented house: Individuals living in their own house cannot claim HRA benefits.
Rent Receipts are Mandatory: Rent receipts must be submitted to claim tax exemptions.
Landlord’s PAN is Required: If rent exceeds ₹1 lakh annually, the landlord’s PAN must be furnished.
What Determines the HRA Exemption Amount?
Key Factors Influencing HRA Exemption
HRA component in salary: The amount of HRA received from the employer directly impacts the exemption.
Basic salary and dearness allowance: HRA calculations depend on the basic salary and DA components.
Actual rent paid: HRA can be claimed by employees on actual rent paid. Self-occupied properties do not qualify for HRA exemption.
Metro vs. non-metro cities: Employees in metro cities (Delhi, Mumbai, Chennai, Kolkata) are eligible to claim higher HRA exemptions compared to employees located in non-metro cities.
Calculation of HRA Exemption in New Tax Regime
The amount eligible for HRA exemption is the minimum of the following three values:
The actual HRA received from the employer.
50% of basic salary (for metro cities) or 40% of basic salary (for non-metro cities).
Rent paid minus 10% of the basic salary.
In the new tax regime, HRA exemption is not available. Employees are eligible to claim HRA exemption under the old tax regime only.
Example of HRA Exemption Calculation for FY 2024-25
Let’s consider an example of a salaried individual, Ankit, to understand how HRA is calculated.
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, Ankit can claim ₹13,000 per month (₹1,56,000 annually) as an exemption under the old tax regime.
Essential Documents for Claiming HRA Tax Exemption
Claiming an HRA exemption under the old tax regime requires proper documentation. Below are the key documents needed:
Rent Receipts: Rent receipts must include the landlord’s name, address, PAN (if rent exceeds ₹1 lakh per year), and the rent amount paid. Ensure the landlord signs the receipts.
Rental Agreement: Some employers and the Income Tax Department may require a rental agreement, particularly for high rent amounts. The agreement should specify the lease duration, rental amount, and occupancy terms.
Bank Statements: Rent payments made via bank transactions serve as additional proof of payment. It is advisable to avoid cash payments.
Form 12BB: Employers may require employees to submit Form 12BB for investment declarations, including HRA claims.
Landlord’s PAN Details: If the rent paid exceeds ₹1 lakh annually, submitting the landlord’s PAN details is mandatory. If the landlord does not have a PAN, a written declaration should be obtained.
Steps to Claim HRA Exemption While Filing ITR
Through Employer Submission: Salaried employees must declare their HRA details to their employer at the beginning of the financial year. This ensures HRA exemption is reflected in Form 16, reducing taxable income.
Claiming Directly in ITR: If HRA was not declared earlier, employees can still claim it while filing the Income Tax Return (ITR). They must manually enter the exempt amount and keep necessary documents for verification.
Using Online Tax Portals: Most tax filing platforms have automated calculations for HRA exemptions. Employees must enter salary details and rent amounts to claim the deduction.
Retaining Documents for Future Scrutiny: The Income Tax Department may request proof of HRA claims; hence, retaining rent receipts and bank statements for at least six years is advisable.
ITR Filing Deadline for HRA Exemption Claims
For FY 2024-25, the last date to file an ITR and claim an HRA tax exemption is July 31, 2025 (unless extended by the government). Filing taxes early ensures compliance and prevents last-minute errors, penalties, or interest charges.
Can You Claim HRA and Home Loan Benefits Together?
Yes, under specific conditions:
If your workplace and owned house are in different cities: You can claim both HRA exemption and home loan tax benefits (under Sections 24(b) for home loan interest and 80C for principal repayment).
If residing in your own house: Only home loan deductions apply, and HRA exemption is not applicable.
If your house is under construction: HRA can be claimed for rent payments while waiting for property possession. Additionally, home loan interest paid before possession can be claimed later in five equal installments.
Consequences of Making False HRA Claims
Submitting incorrect HRA claims can lead to significant penalties:
Income Tax Notice: The IT Department may issue a notice if discrepancies are detected between declared HRA claims and provided documents.
Penalties & Interest Charges: Under Sections 234A, 234B, and 234C, individuals may face interest charges and fines for false claims.
Increased Scrutiny in Future Tax Filings: Taxpayers with misleading HRA claims may be subjected to closer inspections in future tax assessments.
Legal Consequences: In cases of deliberate tax fraud, individuals may face legal action and heavier penalties.
Should You Opt for the New Tax Regime?
The new tax regime aims to simplify tax calculations but eliminates key exemptions, including HRA. Before deciding, individuals should evaluate their tax liabilities under both systems and consider factors such as rental expenses and investment habits.
If HRA exemptions and deductions significantly reduce your taxable income, the old tax regime remains the better option. However, if you prefer a hassle-free tax filing process with lower tax rates, the new tax regime may be advantageous.
To make an informed choice, use tax calculators and compare your liabilities under both regimes before opting for one.
FAQs
1. Is HRA exemption available under the new tax regime?
No, the new tax regime does not allow HRA exemption. If you opt for the new regime, you cannot claim deductions for HRA, 80C, or 80D, among others.
2. Can I still receive HRA in my salary under the new tax regime?
Yes, you will continue to receive HRA as part of your salary if your employer provides it. However, you cannot claim it as an exemption under the new tax regime.
3. How does the loss of HRA exemption impact salaried employees?
Without HRA exemption, your taxable income increases, which may result in higher tax liability if you previously relied on deductions to lower your taxable income.
4. Who should choose the old tax regime over the new one?
If you have significant deductions such as HRA, 80C (PF, PPF, ELSS), 80D (medical insurance), and home loan interest, the old tax regime may be more beneficial.
5. How does HRA exemption work under the old tax regime?
Under the old tax regime, the HRA exemption is calculated as the minimum of:
Actual HRA received
50% of basic salary (for metro cities) or 40% (for non-metro cities)
Rent paid minus 10% of basic salary
6. If I live in my own house, can I still claim HRA exemption?
No, HRA exemption is only available if you live in rented accommodation. If you own a house, you can claim home loan benefits instead under the old tax regime.
7. Can I switch between tax regimes every year?
Salaried employees can switch between the old and new tax regimes every financial year. However, individuals with business income can switch only once.
8. What are the tax-saving alternatives in the new tax regime?
The new tax regime does not allow most exemptions, but the revised tax slabs and higher basic exemption limit help reduce tax liability. Additionally, investments in the National Pension System (NPS) under Section 80CCD(2) are still deductible.
9. 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 other deductions.
10. Can self-employed individuals claim HRA exemption?
Self-employed individuals do not receive HRA from an employer, but they can claim a deduction for rent paid under Section 80GG, subject to specific conditions.
11. What if my rent is paid in cash? Can I still claim HRA?
Yes, but you need valid rent receipts signed by your landlord. If the rent exceeds ₹1 lakh annually, the landlord’s PAN is mandatory.
12. Can I claim HRA for paying rent to my parents?
Yes, you can claim HRA exemption if you pay rent to your parents, provided you have a proper rental agreement and your parents declare the rental income in their ITR.
13. Will HRA exemption return in future budgets?
There is no official confirmation regarding reinstating HRA exemptions under the new tax regime. The government’s focus is on encouraging a simplified tax system.
14. What should I do if I mistakenly opt for the wrong tax regime?
If you select the wrong tax regime while filing ITR, you can revise your return before the due date or consult a tax professional for guidance.
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