If you pay rent for two houses, can you avail the HRA tax exemption benefit? Find out the rules..

For salaried individuals, the House Rent Allowance (HRA) is a key method for saving tax. It is the portion of the salary provided to employees to cover housing rent. However, the tax exemption benefit on HRA is available only under the Old Tax Regime. Employees opting for the New Tax Regime are required to pay tax on the entire HRA amount received.

Many people live in rented accommodation in the city where they work, while their parents reside in a different city. In such cases, they may pay rent for their own accommodation as well as for their parents' home. The question arises: can one claim HRA tax exemption on the rent paid for both houses?

Is exemption available on the rent of a second house?
Under Section 10(13A) of the Income Tax Act, tax exemption on HRA is granted subject to certain conditions. For this, it is mandatory for the employee to actually pay rent for the house they occupy. According to the Income Tax Department, the HRA exemption applies only to the rent of the accommodation where the employee personally resides. Therefore, if an employee lives in a rented house in their work city and also pays rent for their parents' house in another city, they cannot claim HRA exemption on the rent paid for the parents' house. Similarly, if an employee lives in their own house and does not pay rent, they cannot claim a tax exemption on HRA.

How is HRA calculated?
The tax exemption on HRA is calculated based on three figures; the exemption is granted on the lowest of these amounts. These are: first, the actual HRA received from the employer; second, the amount remaining after deducting 10% of the salary from the total rent paid; and third, an amount equal to 50% of the salary for metro cities and 40% for non-metro cities. For this calculation, 'salary' may include basic salary and Dearness Allowance (DA), in accordance with prescribed rules. Delhi, Mumbai, Kolkata, and Chennai are classified as metro cities.

What if you do not receive HRA?
Employees who do not receive HRA as part of their salary cannot claim the exemption under Section 10(13A). However, eligible salaried individuals and the self-employed can avail of a deduction for rent paid under Section 80GG of the Income Tax Act, provided they meet the prescribed conditions.

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