HRA Tax Exemption Removed Under New Tax Regime! Know the Key Differences and Calculation Rules

HRA Tax Exemption Removed Under New Tax Regime! Know the Key Differences and Calculation Rules Newspoint | 19/06/2025 17:39:13

If you’re a salaried employee planning your taxes, the House Rent Allowance (HRA) has likely been one of your primary tools for saving money. However, with the introduction of the new tax regime, many are confused about whether HRA exemptions are still valid—and how they differ from the old tax structure.

This guide breaks down how HRA works under both systems, whether you can combine it with home loan tax benefits, and how HRA exemption is calculated in the old regime.

❌ No HRA Tax Relief Under the New Regime

Under the new income tax regime, HRA exemption is no longer available. As per Section 115BAC of the Income Tax Act, all exemptions related to HRA have been removed.

In fact, the new regime eliminates several commonly used deductions and allowances, including:

Leave Travel Concession (LTC)
Home loan interest deduction (Section 24b)
Children’s education and hostel allowances
Most Section 80C benefits, except 80CCD(2) (NPS employer contributions)

This makes the new regime more simplified, but potentially costlier for individuals with eligible deductions.

🏠 Can You Claim HRA and Home Loan Benefits Together?

Yes, but only under the old tax regime.

If you're:

Living in a rented house due to your job
Simultaneously paying EMIs for a home loan on a different property

You are eligible to claim both HRA tax exemption and home loan interest deduction—as long as the property you own is not being self-occupied.

You must demonstrate that:

You're not living in your owned house
It's either rented out or occupied by family members

This combination of deductions can lead to substantial tax savings every year.

🧮 How Is HRA Tax Exemption Calculated?

Under the old tax regime, HRA exemption is calculated based on the lowest value among the following three:

Actual HRA received from your employer

50% of basic salary (if living in a metro city) or 40% (for non-metros)

Rent paid minus 10% of basic salary

Example Calculation:

Let’s say:

Your annual basic salary = ₹8,00,000
Annual rent paid = ₹3,60,000
HRA received = ₹3,20,000

Now compute the three figures:

Actual HRA received = ₹3,20,000
50% of salary = ₹4,00,000 (metro city)
Rent – 10% of salary = ₹3,60,000 – ₹80,000 = ₹2,80,000

The least of the three, i.e., ₹2,80,000, will be exempted from tax under Section 10(13A).

📑 What Documents Are Needed to Claim HRA?

To claim HRA under the old regime, you’ll need to submit:

Rent agreement
Rent receipts
PAN card of the landlord (mandatory if rent exceeds ₹1 lakh per year)
Proof of rent payment (especially if the landlord is a relative)

Note: If the monthly rent exceeds ₹50,000, TDS (Tax Deducted at Source) documentation is also required.

💡 Final Word: Choose the Right Tax Regime

If you're eligible for multiple deductions—like HRA, home loan interest, 80C investments—the old regime may offer greater tax savings despite higher slab rates.

However, if you don't have major deductions to claim, the new regime with its lower tax slabs could work better.

Before filing your Income Tax Return (ITR), assess both regimes carefully or consult a tax expert to determine which structure maximizes your benefits.