House Rent Allowance (HRA) is a component of salary provided by employers to meet rental accommodation expenses. Under Section 10(13A) of the Income Tax Act, a portion of HRA is exempt from tax. The exemption is designed to provide relief to salaried employees who live in rented houses and pay rent.

HRA exemption is the least of three amounts: (1) Actual HRA received from employer, (2) Rent paid minus 10% of basic salary (this accounts for the minimum living expenses you would incur even without renting), and (3) 50% of basic salary if living in metro cities (Delhi, Mumbai, Kolkata, Chennai) or 40% of basic salary for non-metro cities. The remaining HRA after exemption is added to your taxable income.

To claim HRA exemption, you need rent receipts as proof of rent payment. If your annual rent exceeds ₹1,00,000, you must provide your landlord's PAN details. The landlord must also declare the rental income in their tax return. For rent exceeding ₹50,000 per month, TDS under Section 194-IB applies at 5% (2% if PAN not provided).

To maximize HRA benefits, ensure your HRA component is appropriately structured in your salary package. If you pay high rent, consider negotiating a higher HRA component with your employer. Note that if you own a house in one city but work in another and live on rent, you can claim both HRA and home loan benefits simultaneously.