Published 7 May 2026
Meet Niharika Saluja, 27, a data analyst at Sigma Analytics in Delhi. She rents a one-bedroom apartment in Vasant Vihar for ₹25,000 a month. Her employer pays her ₹2,40,000 a year as House Rent Allowance (HRA). She wants to claim the Section 10(13A) HRA exemption under the old regime – and compare against the new regime to see which is better.
This article walks Niharika through the ITR-1 filing with HRA exemption, explains how Rule 2A computes the exempt portion, and helps her decide between regimes.
1. Eligibility – the standard ITR-1 checklist
ITR-1 supports HRA-claiming salaried filers with no special restrictions. The form’s eligibility tests (same as the single-salary article) all pass for Niharika:
- Resident & Ordinarily Resident ✓
- Total income ≤ ₹50 lakh ✓ (her ₹9.8 lakh gross is well under)
- Salary + at most one HP + limited other-sources ✓
- No business / foreign assets, and no capital gains other than Section 112A long-term gains up to ₹1.25 lakh ✓
- Not a director / no unlisted shares ✓
2. About the HRA exemption (Section 10(13A) + Rule 2A)
HRA is partially exempt – not fully. Rule 2A of the Income-tax Rules computes the exempt amount as the lowest of three quantities:
- Actual HRA received from the employer.
- 50% of salary if the rented home is in Delhi, Mumbai, Chennai or Kolkata – otherwise 40%. “Salary” here is basic pay plus dearness allowance where the terms of employment provide for it; other allowances and perquisites are left out.
- Rent paid in excess of 10% of basic salary (i.e. annual rent minus 10% of basic).
The LOWEST of (1), (2), (3) is the exempt amount. Anything above the lowest of the three is taxable salary.
Critical caveats:
- HRA exemption is only available under the old regime. Section 115BAC(2) switches off a specific list of exemptions – leave travel concession (Section 10(5)), HRA (Section 10(13A)), the Section 10(14) allowances other than those prescribed (such as conveyance for handicapped employees), and Sections 10(17) and 10(32). Other Section 10 exemptions, such as gratuity (Section 10(10)), leave encashment (Section 10(10AA)) and voluntary-retirement compensation (Section 10(10C)), remain available – HRA is on the switched-off list.
- You must be actually paying rent (no rent paid → no exemption, even if HRA was received).
- Where the aggregate rent paid in the year exceeds ₹1 lakh, the employee gives the employer the landlord’s PAN in Form 12BB (rule 26C) as evidence for the HRA claim.
- If you live with your parents, you can pay them rent and claim HRA, provided the arrangement is genuine, your parents include the rent in their income, and you have rent receipts.
For Niharika:
- HRA received: ₹2,40,000
- 50% of basic (metro): ₹3,00,000
- Rent ₹3,00,000 minus 10% of basic ₹60,000 = ₹2,40,000
Lowest = ₹2,40,000. Her entire HRA receipt is exempt under the old regime. (This is the “best case” – the rent is high enough relative to basic that HRA fully shields out.)
3. What you need
| Document | Why |
|---|---|
| Form 16 | Salary breakup including HRA received. |
| Rent receipts (12 months) | Documentation of actual rent paid. |
| Rent agreement | Lease document. ITD can ask for it. |
| Landlord’s PAN | Required if annual rent > ₹1 lakh. Niharika’s annual rent ₹3 lakh – mandatory. |
| PAN, Aadhaar | Standard. |
| Bank account | For refund. |
| 80C investment proof | If old regime turns cheaper. |
What Niharika’s Form 16 looks like (with HRA exemption applied)
Sigma Analytics’ Form 16 already incorporates the HRA exemption because Niharika submitted Form 12BB (rent + landlord PAN declaration) at the start of the year. Note line 2 shows ₹2,40,000 HRA exempt:
Two things worth noticing:
- Salary chargeable (line 5) = Gross ₹9,80,000 minus HRA exempt ₹2,40,000 minus profession tax ₹2,500 minus standard deduction ₹50,000 = ₹6,87,500. This is the figure that flows into BharatTax’s salary card.
- 80C ₹1,50,000 already deducted – Niharika declared her PPF investment to the employer via Form 12BB, so TDS reflected the benefit through the year. Without this declaration, TDS would have been ~₹31,200 higher and you’d recover the difference at filing.
4. Step-by-step walkthrough
Step 1 – Sign in
Step 2 – Skip last-year import (manual flow)
Step 3 – Personal information
Step 4 – Questionnaire
Individual / ROR / Salary only / no Director / no unlisted / no foreign / no losses.
Step 5 – Salary schedule with HRA fields
Niharika clicks View on the Salary card and enters her Sigma Analytics details:
- Employer name: Sigma Analytics India Pvt Ltd
- Employer TAN: DELS56789F
- Basic salary: ₹6,00,000
- HRA received: ₹2,40,000
- Special allowance: ₹1,40,000
- Profession tax (Sec 16(iii)): ₹2,500
- TDS deducted: ₹60,000
She then enters the HRA-specific fields needed for the Rule 2A computation:
- Annual rent paid: ₹3,00,000
- Metro city? Yes (Delhi)
Once both are filled, BharatTax automatically computes the HRA exemption: ₹2,40,000.
Why “Metro?” matters. The 50% factor in Rule 2A applies only to Delhi, Mumbai, Chennai, Kolkata. For other cities (Bengaluru, Hyderabad, Pune, Gurugram, Noida, etc.) it’s 40%. Pick correctly – the 50% limit is available only where the rented home is in one of the four cities named in Rule 2A. From tax year 2026-27, rule 279 of the Income-tax Rules, 2026 extends the 50 per cent limit to eight cities (adding Hyderabad, Pune, Ahmedabad and Bengaluru); that change does not apply to AY 2026-27.
Where does the landlord PAN go? Annual rent above ₹1 lakh requires the landlord’s PAN in Form 12BB. If the PAN was not given, the employer may not have allowed the exemption when deducting TDS; the exemption itself turns on rent actually paid (Section 10(13A) and rule 2A), and it can be claimed in the return.
Step 6 – 80C investment
PPF contribution ₹1,50,000.
Step 7 – Schedule TI
Side-by-side regime view:
| Line | New regime | Old regime |
|---|---|---|
| Gross salary | ₹9,80,000 | ₹9,80,000 |
| Less: Std deduction (Sec 16(ia)) | ₹75,000 | ₹50,000 |
| Less: Profession tax (Sec 16(iii)) | – | ₹2,500 |
| Less: HRA exempt (Sec 10(13A)) | – | ₹2,40,000 |
| Income from Salary | ₹9,05,000 | ₹6,87,500 |
| Income from Other Sources | ₹0 | ₹0 |
| Gross Total Income | ₹9,05,000 | ₹6,87,500 |
| Less: Chapter VI-A (80C) | – | ₹1,50,000 |
| Total Income (Sec 288A) | ₹9,05,000 | ₹5,37,500 |
Note how the old regime’s HRA exemption + 80C drops total income from ₹9.05 lakh (new) to ₹5.37 lakh (old) – nearly half. That looks decisive – but the slab + rebate math has a final say.
Step 8 – Compute tax
| New regime | Old regime | |
|---|---|---|
| Tax on slab | ₹30,500 | ₹20,000 |
| 87A rebate | ₹30,500 (full) | ₹0 (TI > ₹5L) |
| Tax post-rebate | ₹0 | ₹20,000 |
| Cess 4% | ₹0 | ₹800 |
| Total tax | ₹0 | ₹20,800 |
| TDS already paid | ₹60,000 | ₹60,000 |
| Net result | Refund ₹60,000 | Refund ₹39,200 |
The new regime still wins by ₹20,800 – despite HRA exemption. Why?
Niharika’s old-regime total income (₹5.37 lakh) sits just above the ₹5 lakh threshold for Section 87A rebate – so the rebate doesn’t apply, and she pays full slab tax. Under the new regime, even at the higher total income of ₹9.05 lakh, the much wider Section 87A rebate (₹60,000 up to ₹12 lakh in AY 2026-27) wipes out her ₹30,500 tax entirely.
If her total income were higher – say ₹15 lakh or above – the picture flips: at higher incomes the old regime’s deduction stack (HRA + 80C + 80D + home-loan interest) starts to outweigh the new regime’s flat lower slabs. BharatTax computes both regimes for every filer, so you don’t need to memorize the break-even.
Step 9 – Confirm regime and download JSON
Niharika confirms New Regime, downloads the JSON, uploads to incometax.gov.in, e-verifies. Refund of ₹60,000 follows in 2-4 weeks.
5. Common HRA-claim mistakes
- No rent receipts → no exemption. ITD can ask for proof. Even if rent is paid via UPI / bank transfer, retain monthly rent receipts (signed by landlord, with PAN if rent > ₹1 lakh).
- Claiming HRA when you live in your own apartment. Cardinal error. HRA exemption is for RENT actually paid. Owning the home you live in disqualifies the entire exemption (Explanation to Section 10(13A)).
- Claiming HRA + Section 24(b) home-loan interest on the SAME property. Mutually exclusive. If the home is self-occupied, you can claim Section 24(b) home-loan interest (up to ₹2 lakh) – but not HRA, because you’re not paying rent.
- Wrong metro flag. Bengaluru / Hyderabad / Pune are NOT metros for HRA purposes (for AY 2026-27 rule 2A names only Delhi, Mumbai, Chennai and Kolkata). Pick correctly.
- Claiming HRA under the new regime. You can’t. New regime disables Section 10(13A). For a taxpayer without business income, the old regime is chosen in the return itself, filed by the Section 139(1) due date (Section 115BAC(6)).
- Forgetting landlord PAN when annual rent > ₹1 lakh. Form 12BB calls for it, and without it the employer may not allow the exemption when deducting TDS.
- Mixing HRA and self-occupied home in the same year for the same property. Cannot do both. If you bought a home mid-year and moved out of rented accommodation, the HRA exemption applies only for the rented months; from the move-in date, Section 24(b) for the new home applies. Rule 2A works on the “relevant period” during which the rented home was occupied.
6. Frequently asked questions
Q: I pay rent to my parents. Can I claim HRA? A: Yes, if it’s a genuine arrangement. Your parents must (a) include the rent received in their income, (b) issue you rent receipts. Payment through a bank and a written agreement are the usual evidence that the arrangement is genuine.
Q: My HRA is part of CTC but I don’t get it monthly – it’s an annual lump sum. Does Rule 2A still work? A: Yes. Rule 2A is computed on actual HRA received during the year, regardless of payment frequency. Annual lump sum or monthly accrual doesn’t change the math.
Q: I share the apartment with a roommate and we split rent. How is HRA computed? A: Each tenant claims HRA on the rent they actually paid. Rent receipts in each tenant’s name, or a joint receipt showing each share, evidence the split.
Q: I lived in two cities in one year (transfer mid-year). Does the metro flag apply for the whole year or just the months in metro? A: Compute month-wise. For months in a metro, 50% factor; for non-metro months, 40%. Rule 2A works on the “relevant period” for each home.
Q: My employer didn’t process my HRA exemption (TDS deducted on full salary). Can I claim at filing? A: Yes. Even if the employer’s Form 16 shows zero HRA exemption, you can still claim it at filing – enter the actual rent paid + metro flag in the BharatTax salary schedule, and the Rule 2A exemption computes automatically. The over-deducted TDS becomes refund.
Q: I forgot to enter rent paid. Can I revise? A: Yes – a revised return can be filed under Section 139(5) up to 31 March 2027 (the end of AY 2026-27) or the completion of assessment, whichever is earlier. Section 139(5) was substituted by the Finance Act 2026 from 1 March 2026; a revised return filed late in that window attracts a fee under the new Section 234-I (₹1,000 where total income does not exceed ₹5 lakh, ₹5,000 otherwise).