Is HRA Taxable Under New Tax Regime?

Tax laws are constantly evolving, and with the introduction of the new tax regime, salaried individuals must carefully evaluate their tax planning strategies. House Rent Allowance (HRA), a significant tax-saving component for those living in rented accommodations, has undergone changes under the revised taxation framework.

Understanding whether HRA is taxable under the new tax regime requires a clear grasp of how taxation policies have shifted and what amendments impact employees’ financial planning. This article will explore the new tax regime, its amendments, and the treatment of HRA under it.

---

Table of Contents

The New Tax Regime: An Overview

How Does HRA Work in the New Tax Regime?

Conclusion

Most Asked Questions

---

The New Tax Regime: An Overview

The new tax regime was introduced to simplify the tax structure and provide taxpayers with an alternative to the older, deduction-heavy framework. It features reduced tax rates but eliminates most exemptions and deductions, including 80C, 80D, home loan interest, and HRA exemptions.

Key Features of the New Tax Regime:

• Lower tax rates compared to the old regime.

• Removal of commonly availed deductions like HRA, 80C, 80D, and home loan benefits.

• Optional choice: Taxpayers can decide between the new and old regimes each year.

• Simplified tax filing with fewer documentation requirements.

• Employers still provide HRA, but its exemption is unavailable in the new regime.

Recent Amendments and Changes

The government has made several amendments to the tax structure to encourage adoption of the new regime. Some key updates include:

• Increased Basic Exemption Limit: Raised to ₹4 lakh, reducing taxable income for low earners.

• Higher Standard Deduction: Now at ₹75,000, providing relief to salaried individuals.

• Modified Tax Slabs: Offering progressive tax rates with fewer complications.

• Tax Rebate Under Section 87A: No tax payable for individuals earning up to ₹12 lakh.

Updated Tax Slabs for FY 2025-2026

The revised income tax slabs under the new tax regime are structured as follows:

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%

These slabs represent a more streamlined tax approach compared to the previous year, where the exemption limit was only ₹3 lakh, and the highest slab started at ₹15 lakh instead of ₹24 lakh. The new system benefits taxpayers in lower income brackets but significantly impacts those who previously relied on deductions for tax savings.

How Does HRA Work in the New Tax Regime?

Under the old tax regime, salaried employees could claim HRA exemptions under Section 10(13A) of the Income Tax Act. This reduced taxable income significantly for those paying rent. However, in the new tax regime, HRA exemption is no longer available.

HRA Under the Old vs. New Tax Regime

Feature	Old Tax Regime	New Tax Regime
HRA Exemption	Available under Section 10(13A)	Not Available
Other Deductions (80C, 80D)	Available	Not Available
Standard Deduction	₹50,000	₹75,000
Lower Tax Slabs	No	Yes
Best For	Taxpayers claiming multiple deductions	Those preferring simplified taxation

What Happens to HRA in the New Tax Regime?

• HRA is fully taxable and added to an employee’s gross salary.

• No deduction or exemption can be claimed on HRA.

• Employers continue providing HRA as a salary component.

• Rent payments do not reduce taxable income in this regime.

Is the New Tax Regime Beneficial Without HRA Exemption?

The answer depends on the taxpayer’s financial profile. If an individual does not claim multiple deductions under the old regime, the lower tax rates of the new regime might result in overall tax savings. However, those heavily dependent on HRA, 80C investments, or medical insurance deductions may find the old regime more advantageous.

Conclusion

Under the new tax regime, HRA is fully taxable, and taxpayers can no longer claim deductions for rent paid. The regime offers lower tax rates but eliminates most tax-saving exemptions, making it beneficial only for those who do not utilize deductions extensively. Before deciding between tax regimes, individuals should evaluate whether the lower tax rates outweigh the benefits lost from HRA and other deductions.

By understanding the implications of the new tax regime, taxpayers can make an informed choice that best suits their financial situation.

FAQ

1. Is HRA taxable under the new tax regime?

Yes, under the new tax regime, House Rent Allowance (HRA) is fully taxable as there is no exemption available under Section 10(13A). This means that the entire amount of HRA received from an employer is added to your taxable income, potentially increasing your tax liability.

2. Can I still receive HRA in my salary?

Yes, employers will continue to provide HRA as a part of your salary structure. However, in the new tax regime, there is no tax exemption on HRA, making the entire amount subject to income tax.

3. Why was HRA exemption removed in the new tax regime?

The government removed various deductions, including HRA, to create a simplified tax system with lower tax rates. The idea was to make tax filing easier and reduce dependency on multiple deductions, allowing taxpayers to pay a fixed tax rate without needing to submit documentation for exemptions.

4. Will my tax liability increase without HRA exemption?

Your tax liability depends on your salary structure and tax-saving habits. If you were heavily dependent on HRA exemptions and other deductions in the old regime, your taxable income will be higher in the new regime, potentially increasing your tax burden. However, if you had minimal deductions, the new regime’s lower tax rates may still offer savings.

5. Can I switch back to the old tax regime to claim HRA?

Yes, salaried employees can switch between the old and new tax regimes every financial year when filing their Income Tax Return (ITR). This allows taxpayers to compare tax liabilities under both regimes and choose the most beneficial option each year.

6. Is there any way to reduce tax liability in the new regime?

Although HRA exemptions are unavailable, you can still save tax in the new regime through:

• Higher Standard Deduction of ₹75,000 for salaried employees.

• Lower tax rates across all income slabs.

• Employer contributions to NPS (under Section 80CCD(2)).

• Tax rebate under Section 87A, making income up to ₹12 lakh tax-free.

7. Can self-employed individuals claim HRA under the new regime?

No, self-employed individuals were never eligible for HRA exemption under Section 10(13A). However, under the old tax regime, self-employed individuals could claim deduction for rent paid under Section 80GG, which is not available in the new regime.

8. Will my employer deduct more TDS due to HRA being taxable?

Yes, since HRA is fully taxable in the new regime, TDS (Tax Deducted at Source) on salary will be higher compared to the old regime where HRA was partially exempt. Your employer will calculate TDS based on your total taxable income, including HRA.

9. How do I decide whether to opt for the new regime?

Choosing between the old and new tax regimes depends on your salary structure and tax-saving investments. You should consider the following:

• If you claim multiple deductions like HRA, Section 80C (PF, ELSS, PPF), and Section 80D (Medical Insurance), the old regime is better.

• If you don’t claim many deductions, the new regime with lower tax rates may be beneficial.

• Use an income tax calculator to compare tax liability under both regimes before making a decision.

10. Are there any other housing-related benefits in the new regime?

No, the new tax regime does not allow deductions for housing rent, home loan interest, or principal repayments under Section 24(b) or Section 80C. The removal of these benefits makes the old tax regime more attractive for individuals with home loans or rental expenses.

11. Does the new tax regime apply automatically?

No, the new tax regime is optional, and taxpayers must actively choose it when filing their ITR. If you do not select the new regime, the default option remains the old tax regime, which allows deductions and exemptions.

12. Who should opt for the new tax regime despite HRA being taxable?

The new tax regime is ideal for individuals who do not claim multiple deductions. It is suitable for:

• Those with higher incomes but fewer investments.

• Individuals who do not have home loans, insurance premiums, or major tax-saving deductions.

• People looking for simpler tax filing without the hassle of maintaining receipts and documentation for deductions.