House Rent Allowance Under Schedule III (Table: S. No. 11) of the Income Tax Act

House Rent Allowance (HRA) is a component of salary provided by an employer to help employees meet the cost of rented accommodation. If you receive HRA as part of your salary and pay rent for the house you live in, a portion of the allowance may be exempt from income tax, subject to the applicable conditions.

Under the Income Tax Act, 2025, HRA exemption is covered under Schedule III (Table: S. No. 11). The exemption is available to eligible salaried individuals who opt for the old tax regime; it is not available under the new tax regime. The amount exempt from tax depends on factors such as the HRA received, salary, rent paid, and location of the rented accommodation.

Read on to understand HRA exemption rules, eligibility, calculation, required documents, and how the tax treatment differs under the old and new tax regimes.

What Is House Rent Allowance (HRA)?

House Rent Allowance (HRA) is a component of a salaried individual's income provided by employers to cover housing expenses. Under Section 10(13A) of the Income Tax Act, 1961, HRA can be partially or fully exempt from taxes, subject to certain conditions.

Section 10(13A) is Now Schedule III (Table: S. No. 11)

Under the earlier Income Tax Act, 1961, the tax exemption on House Rent Allowance (HRA) was covered under Section 10(13A). With the Income Tax Act, 2025, coming into effect from 1 April 2026, the corresponding provision is now covered under Section 11 read with Schedule III (Table: S. No. 11).

The provision continues to provide an exemption on eligible HRA received from an employer, subject to the prescribed conditions and limits. The amount of exemption is determined according to the applicable rules, including the HRA received, rent paid, salary, and location of the rented accommodation.

Therefore, references to Section 10(13A) relate to the earlier Income Tax Act, 1961, while HRA exemption for tax year 2026-27 onwards should be referred to under Schedule III (Table: S. No. 11) of the Income Tax Act, 2025.

Eligibility Criteria for HRA Exemption under Section 10(13A) 

To claim HRA exemption under Schedule III (Table: S. No. 11), the following conditions generally need to be met:
●    You should be a salaried individual receiving HRA: The exemption applies when House Rent Allowance forms part of your salary.
●    You should be living in rented accommodation: You must actually pay rent for the residential accommodation occupied by you. HRA exemption is not available if you live in your own house or do not pay rent.
●    You should opt for the old tax regime: HRA exemption under Schedule III (Table: S. No. 11) is not available when income is computed under the new tax regime under Section 202.
●    You should maintain supporting documents: Rent receipts, a rent agreement, and other applicable documents should be retained as evidence of the rent paid.
The amount of HRA that can be claimed as exempt is calculated separately based on the prescribed limits and is not necessarily equal to the entire HRA received.

Documents Required to Claim HRA Exemption

To claim HRA exemption, you should maintain documents that establish that you occupy rented accommodation and actually pay rent for it. Depending on your employer's requirements and the amount of rent paid, these may include:
●    Rent receipts: Keep receipts for the rent paid during the year. They should typically include details such as the tenant's name, landlord's name, rental property address, rent amount, rental period, date of payment, and the landlord's signature.
●    House rent agreement: Maintain a valid rent agreement containing details such as the names of the tenant and landlord, address of the rented property, monthly rent, and the period of tenancy.
●    Landlord's PAN: The landlord's PAN must be furnished if the aggregate rent paid during the tax year exceeds Rs.1 Lakh.
●    Proof of rent payment: Bank statements or other payment records may be useful as supporting evidence, particularly where rent is paid digitally.

Calculation of HRA Exemption: 

The amount of HRA exemption is the minimum of the following three amounts: 

• Actual HRA Received: The HRA amount provided by the employer. 

• 50% of Salary (for Metro Cities) or 40% of Salary (for Non-Metro Cities): 

  • For individuals residing in metro cities (Delhi, Mumbai, Kolkata, Chennai), 50% of salary 
  • For those in non-metro cities, 40% of salary 

• Actual Rent Paid minus 10% of Salary: The excess of rent paid over 10% of salary. 

Note: For HRA calculation purposes, 'salary' includes basic salary, dearness allowance (if it forms part of retirement benefits), and commission as a fixed percentage of turnover achieved by the employee. 

Example Calculation:

Assume the following details for an individual residing in a non-metro city: 

• Basic Salary: Rs.30,000 per month 
• Dearness Allowance (DA): Rs.5,000 per month 
• HRA Received: Rs.12,000 per month 
• Rent Paid: Rs.15,000 per month 

Calculations: 

• Actual HRA Received: Rs.12,000 per month 
• 40% of Salary: 
  • Monthly Salary = Basic Salary + DA = Rs.30,000 + Rs.5,000 = Rs.35,000 
  • 40% of Monthly Salary = 0.40 × Rs.35,000 = Rs.14,000 
• Actual Rent Paid minus 10% of Salary: 
  • 10% of Monthly Salary = 0.10 × Rs.35,000 = Rs.3,500 
  • Excess of Rent Paid over 10% of Salary = Rs.15,000 – Rs.3,500 = Rs.11,500 

The minimum of the above three amounts is Rs.11,500. Therefore, the monthly HRA exemption is Rs.11,500. 

Important Considerations:

• Documentation: Maintain rent receipts and rental agreements as proof of rent payment. If the annual rent exceeds Rs.1 Lakh, the landlord's PAN may be required. 
• Multiple Residences: If residing in different cities during the year or if there are changes in salary, rent, or HRA, calculate the exemption separately for each period. 
• Own Property: Individuals owning a house can still claim HRA exemption if they reside in rented accommodation elsewhere. 
• Section 134: Self-employed individuals or those not receiving HRA can claim a deduction for rent paid under Section 134, subject to specific conditions. 

Benefits of Schedule III (Table: S. No. 11) for Taxpayers

If you are a salaried individual living in rented accommodation, Schedule III (Table: S. No. 11) of the Income Tax Act, 2025, can help you save on taxes. Here’s how: 

• Reduces taxable income by exempting a portion of your House Rent Allowance
• Taxpayers residing in metro cities can claim higher exemptions
• Applies even when paying rent to parents, as long as you have proper documentation, such as rent receipts and agreement

HRA Exemption Limits: Metro vs. Non-Metro Cities

House Rent Allowance (HRA) varies based on the city in which an employee resides. Employees living in metropolitan cities are typically eligible for HRA amounting to up to 50% of their basic salary, while those residing in non-metro cities are entitled to up to 40% of their basic pay. Additionally, in cases where no dearness allowance or commission is paid, HRA is generally structured at around 40% to 50% of the basic salary. 

Schedule III (Table: S. No. 11) vs. Section 134: HRA for Salaried and Self-Employed

The Income Tax Act provides two separate provisions to individuals who live in rented accommodation — Schedule III (Table: S. No. 11) and Section 134. 

Schedule III (Table: S. No. 11) applies to salaried employees who receive HRA from their employer. To claim this exemption, the employee must be paying rent for residential accommodation. The tax-exempt portion of HRA is calculated in one of the following ways:  

• The total House Rent Allowance actually paid by the employer 
• The rent paid after deducting 10% of the employee’s basic salary 
• 50% of basic salary in the case of a metro city, or 40% of basic salary for non-metro cities.  

The lowest of these values is allowed as an exemption. Employees are required to submit rent receipts or supporting documents to their employer for the exemption to be considered while computing taxable income. 

Section 134, on the other hand, is meant for individuals who do not receive HRA as part of their salary. This provision is commonly used by self-employed individuals. Under this section, a deduction can be claimed for rent paid, subject to specified conditions, such as: 

• You are self-employed or employed in a salaried role that does not include House Rent Allowance as part of your pay structure. 
• Neither you, your spouse, nor your minor child owns a residential property in the city where you currently reside or are employed. 
• If you own a residential property in another location, it must not be claimed as a self-occupied house. 
• You are paying rent for the residential accommodation in which you live.