HRA Exemption & Rent Receipts 2026: How to Save Tax on Rent

UrbanYardz Editorial · Tax · 2026-06-19

HRA exemption 2026 explained: how it's calculated, rent receipts you need, the 1% TDS rule, PAN limits and how to claim — for salaried renters in India.

If you are a salaried employee paying rent, the HRA exemption is one of the simplest and most powerful ways to cut your tax bill in 2026. House Rent Allowance is a component of your salary, and a portion of it can be claimed as exempt from tax under Section 10(13A) of the Income-tax Act — provided you actually pay rent and keep clean documentation. This guide breaks down exactly how the HRA exemption is calculated, the rent receipts and PAN details you need, and the common mistakes that get claims rejected.

What is HRA and who can claim the exemption

HRA, or House Rent Allowance, is an allowance your employer pays as part of your CTC to help cover rented accommodation. It is fully taxable on its own — the HRA exemption only kicks in when you genuinely pay rent for a home you live in but do not own.

To claim it, three conditions must hold:

You are a salaried employee receiving HRA as part of your salary.
You pay rent for residential accommodation that you occupy.
You do not own the house you are living in.

Self-employed individuals and those whose salary does not include an HRA component cannot use Section 10(13A) — though they may explore the more limited deduction under Section 80GG instead.

> Important for 2026: HRA exemption is available only under the old tax regime. The new regime (default since FY 2023-24) offers lower slab rates but removes most exemptions, including HRA. Run both numbers before you choose.

How the HRA exemption is calculated

The exempt amount is the least of these three:

1. Actual HRA received from your employer. 2. 50% of basic salary (including dearness allowance, if it counts toward retirement benefits) if you live in a metro — Delhi, Mumbai, Kolkata or Chennai — or 40% if you live anywhere else. 3. Rent paid minus 10% of basic salary.

Whichever of the three is smallest becomes your exempt HRA; the rest is taxable.

A quick worked example

Assume you work in Bengaluru (a non-metro for HRA purposes), with a basic salary of Rs 50,000/month, HRA of Rs 20,000/month, and rent paid of Rs 18,000/month.

So Rs 13,000/month (Rs 1,56,000/year) is exempt, and the remaining Rs 7,000/month of HRA is taxable. Note that for HRA, only Delhi, Mumbai, Kolkata and Chennai count as metros — Bengaluru, Hyderabad and Pune attract the 40% rate. Rather than doing this by hand, use the UrbanYardz HRA calculator to plug in your figures and see the exempt amount instantly.

Rent receipts: what you actually need

Rent receipts are the backbone of any HRA claim. A valid receipt should carry:

Tenant's name and the rented address.
Amount of rent paid and the period it covers.
Landlord's name, signature and PAN (where required — see below).
A revenue stamp if the cash payment exceeds Rs 5,000 per receipt.

Best practice is to pay rent by bank transfer or UPI so there is an auditable money trail, and to keep a signed rent agreement. Cash rent is allowed but far harder to defend if the Income-tax Department raises a query. Retain all receipts and proof of payment for at least 6-7 years.

When is the landlord's PAN required?

As of 2026, if your annual rent exceeds Rs 1,00,000 (about Rs 8,333/month), you must report the landlord's PAN to your employer or in your return. If the landlord does not have a PAN, obtain a declaration along with Form 60. Treat the Rs 1,00,000 figure as the rule of thumb — confirm the current threshold with your CA, as documentation rules are periodically tightened.

TDS on rent: the 194-IB rule

A point many tenants miss: if you are an individual paying rent above Rs 50,000 per month, Section 194-IB requires you to deduct TDS once a year and deposit it with the government using Form 26QC. Following recent revisions, the applicable rate is around 2% as of 2026 (down from the earlier 5%) — verify the current rate before you deduct, as it has changed more than once.

You do not need a TAN for this; your PAN suffices. Failing to deduct can attract interest and penalties, so factor it in if you rent a premium home. Salaried tenants in lower rent brackets are unaffected.

Claiming HRA: through your employer vs. in your ITR

You can claim the HRA exemption in two ways:

Via your employer: Submit rent receipts and the landlord's PAN (if applicable) during the year. Your employer then factors the exemption into TDS, so less tax is deducted from your monthly salary.
Directly in your ITR: If you missed the employer window, you can still claim it while filing your return. Compute the exempt amount yourself, reduce your taxable salary accordingly and keep the receipts handy in case of a notice.

If you are between homes or comparing localities, browse verified listings and current rents on UrbanYardz rental search before you sign your next agreement — a clean rent agreement makes the HRA paperwork much smoother.

Special situations you should know about

Paying rent to parents. Perfectly legal if it is a genuine arrangement: your parents must own the home, you must actually transfer the rent, and they must declare it as rental income. Sham arrangements created only to save tax are routinely disallowed.

HRA plus home loan. You can claim both in genuine cases — say you rent in your work city while servicing a loan on a property elsewhere or one that is let out. The facts must support the claim.

Living in your own city but a different house. Allowed, as long as you don't own the house you rent and the arrangement is real.

Rent paid to a spouse. Generally viewed with suspicion by tax authorities and frequently litigated — tread carefully and take professional advice.

Common mistakes that get HRA claims rejected

Claiming HRA under the new regime (not allowed).
Missing the landlord's PAN when rent crosses Rs 1,00,000/year.
No rent agreement or only cash receipts with no bank trail.
Inflated rent or round-tripping money to family members.
Forgetting the 194-IB TDS obligation on rent above Rs 50,000/month.

Frequently Asked Questions

Can I claim HRA exemption under the new tax regime in 2026?

No. HRA exemption under Section 10(13A) is available only under the old tax regime. If you opt for the new regime — the default since FY 2023-24 — HRA cannot be claimed, so compare both regimes before deciding.

Do I need to submit rent receipts every month?

Your employer usually asks for rent receipts once or twice a year for TDS purposes, but you should collect them monthly or quarterly and retain them for at least 6-7 years in case the Income-tax Department asks.

Is the landlord's PAN mandatory for HRA exemption?

If your total rent for the year exceeds Rs 1,00,000 (roughly Rs 8,333 a month), you must report the landlord's PAN. If the landlord has no PAN, a signed declaration with Form 60 is required — confirm the current threshold with your CA.

Can I claim HRA if I live with my parents?

Yes, if you genuinely pay rent to your parents who own the home. Pay by bank transfer, get proper receipts, and remember the rent becomes taxable rental income in your parents' hands.

What is the 1% TDS on rent I keep hearing about?

Under Section 194-IB, an individual tenant paying rent above Rs 50,000 per month must deduct TDS (around 2% as of 2026 after recent revisions) once a year and deposit it. Verify the current rate before deducting.

Can I claim both HRA and a home loan deduction?

Yes, in genuine cases — for example, you rent in your work city while owning a home elsewhere or one that is let out. The claim must reflect a real situation, not a paper arrangement.

Ready to crunch your numbers? Use the free UrbanYardz HRA calculator to find your exact exemption in seconds, then explore verified rentals across India on UrbanYardz to find a home that fits your budget — and your tax planning. Always confirm current rates and thresholds with your CA before filing.