Section 10(13A) of the Income Tax Act provides an exemption on House Rent Allowance (HRA) received from employer, calculated as the least of three specified amounts.
Section 10(13A) of the Income Tax Act, 1961, read with Rule 2A of the Income Tax Rules, 1962, exempts a portion of the House Rent Allowance (HRA) received by a salaried employee from tax. The exemption is conditional on the employee actually paying rent for the residential accommodation they occupy, and it is computed monthly as the least of three specified amounts. Section 10(13A) is one of the largest single exemptions available to salaried Indians under the old tax regime, and a properly structured HRA component can shield several lakhs of rupees from tax every year.
For each month in which the employee pays rent, the exempt HRA is the lowest of:
“Salary” for this calculation means basic salary plus dearness allowance (only the part forming retirement benefits) plus any commission computed as a fixed percentage of turnover. Anything received as HRA above the exempt amount is added back to taxable income and subject to TDS under Section 192.
Only four cities are designated as metros for Section 10(13A) — Mumbai, Delhi, Kolkata and Chennai. Despite their cost of living, every other Indian city, including Bengaluru, Hyderabad, Pune, Gurugram, Noida and Ahmedabad, is treated as non-metro with the lower 40% cap. This is one of the most common errors in Indian payroll: applying the 50% cap to Bengaluru or Hyderabad employees creates a TDS shortfall that surfaces only at year-end Form 16 reconciliation.
Consider an employee in Mumbai with the following annual figures:
| Component | Amount (₹) |
|---|---|
| Basic salary | 15,00,000 |
| HRA received | 6,00,000 |
| Rent paid (₹50,000 × 12) | 6,00,000 |
The exemption is the least of:
| Calculation | Amount (₹) |
|---|---|
| (a) Actual HRA received | 6,00,000 |
| (b) 50% of basic (metro) | 7,50,000 |
| (c) Rent paid − 10% of basic (6,00,000 − 1,50,000) | 4,50,000 |
| Exempt under Section 10(13A) (lowest) | 4,50,000 |
| Taxable HRA | 1,50,000 |
The employee receives ₹6,00,000 in HRA but only ₹1,50,000 is taxed — a saving of ₹1,40,400 in tax for someone in the 30% slab (including 4% cess).
To allow the exemption through monthly payroll, the employer typically collects:
If the employee fails to provide the documentation by the employer’s annual proof-submission deadline, the employer must tax the full HRA. The employee can still claim the exemption directly in the income tax return, but it triggers a higher monthly TDS during the year.
Section 10(13A) does not bar paying rent to a parent, spouse or relative — but the arrangement must be genuine. The conditions tax officers check are:
Notional or paper-only arrangements — where rent is not actually paid or the parent does not declare it as income — are routinely disallowed during scrutiny under Section 142 / 143.
An employee living in a house they own cannot claim Section 10(13A) — there is no rent paid. However, they can claim the home loan interest deduction under Section 24(b) (up to ₹2,00,000 for self-occupied) and the principal repayment under Section 80C (within the ₹1.5 lakh cap).
It is possible to claim both Section 10(13A) HRA exemption and the Section 24(b) home loan interest deduction in the same year if:
If the employee owns a flat in Pune, lives and works in Bengaluru on rent, and pays a home loan on the Pune flat, they can claim HRA on the Bengaluru rent and home-loan interest on the Pune EMI. The two are not mutually exclusive provided the facts support each claim.
Section 10(13A) is not allowed under the new tax regime introduced via Section 115BAC. Employees who default to or opt for the new regime have their entire HRA component added to taxable salary, regardless of the rent they pay. For employees with significant rent — typical in Mumbai, Delhi-NCR, Bengaluru — this is the single largest reason the old regime still wins on tax. Payroll software must branch on regime choice to avoid wrongly granting the exemption to new-regime employees, which causes a TDS shortfall and a year-end recovery from salary. The Indian salary structures and CTC guide breaks down the trade-off in numbers.
Omnivoo collects rent and landlord PAN through the employee self-service portal, applies the correct metro / non-metro cap based on the employee’s current city, and recomputes the monthly exemption automatically when rent or salary changes during the year. The system also blocks the exemption for new-regime employees and flags missing landlord PANs once annual rent crosses ₹1 lakh, preventing the most common HRA compliance gaps before they become year-end reconciliation pain.
Basic salary is the core fixed component of an Indian salary structure, typically 40-50% of CTC, that determines PF contributions, gratuity, HRA exemption, and other statutory calculations.
CTC is the total annual expenditure an employer incurs on an employee, including salary, allowances, benefits, and statutory contributions.
HRA is a salary component provided to employees to cover rental housing expenses, partially or fully exempt from income tax based on a prescribed formula.
TDS is the income tax an employer withholds from an employee's salary each month and deposits with the government on their behalf.
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