HRA, Rent Receipts and the Landlord's PAN: What Actually Holds Up
Two colleagues on identical pay, renting identical flats at identical rents, end the year with HRA exemptions Rs 60,000 apart. One is posted in Chennai, the other in Bengaluru. Nothing in their files differs except the city, and the Income-tax Act treats one of them as a metro and the other as not.
HRA is the most claimed and most casually filed exemption on an Indian salary slip, and the one where the department's automated checks have got sharpest. Here is how the number is built, what paperwork holds up, and which claims get pulled.
Key takeaways
- Your exemption is the lowest of three figures — actual HRA received, 50% or 40% of salary, and rent paid minus 10% of salary. Not an average, not your choice.
- Only four cities count as metros for the 50% test: Delhi, Mumbai, Kolkata and Chennai. Bengaluru, Hyderabad, Pune and Gurgaon are all 40% cities.
- Above Rs 1,00,000 of annual rent you must report the landlord's PAN to your employer. That is Rs 8,334 a month — most urban tenants cross it.
- Rent below 10% of your salary gives you zero exemption, however much HRA sits in your CTC.
- The new tax regime does not allow HRA at all. A Rs 3.48 lakh exemption in the 30% slab is worth about Rs 1.09 lakh of tax, and that is the number to weigh against the new regime's lower rates.
The three-figure test, worked through
Section 10(13A) read with Rule 2A sets it out. Compute all three figures for the year, take the smallest, and that much of your HRA is exempt. The rest is salary.
"Salary" here is narrower than it sounds: basic pay, dearness allowance only where your terms of employment make it count for retirement benefits, and commission fixed as a percentage of turnover. Special allowance, LTA, bonus and reimbursements are excluded. Using gross CTC is the commonest error in a self-filed return.
Take an employee on basic pay of Rs 60,000 a month with no DA, HRA of Rs 30,000 a month, paying rent of Rs 35,000 a month.
| The three figures | How it is computed | Chennai (metro) | Bengaluru (non-metro) |
|---|---|---|---|
| Actual HRA received | Rs 30,000 x 12 | Rs 3,60,000 | Rs 3,60,000 |
| 50% or 40% of salary | Rs 7,20,000 x 50% / 40% | Rs 3,60,000 | Rs 2,88,000 |
| Rent paid less 10% of salary | Rs 4,20,000 minus Rs 72,000 | Rs 3,48,000 | Rs 3,48,000 |
| Exempt (lowest of the three) | Rs 3,48,000 | Rs 2,88,000 | |
| Taxable HRA | Received minus exempt | Rs 12,000 | Rs 72,000 |
The Bengaluru employee pays roughly Rs 18,700 more tax at the 30% slab with cess, on the same rent, in a city where rents are not 20% cheaper. That is the rule as written.
Where the binding constraint sits
The third figure — rent minus 10% of salary — decides most cases. Hold salary and HRA fixed at the numbers above, keep the employee in a metro, and vary only the rent.
| Monthly rent | Annual rent | Rent less 10% of salary | Exemption allowed | Binding limit |
|---|---|---|---|---|
| Rs 5,000 | Rs 60,000 | Nil | Rs 0 | Rent test |
| Rs 10,000 | Rs 1,20,000 | Rs 48,000 | Rs 48,000 | Rent test |
| Rs 20,000 | Rs 2,40,000 | Rs 1,68,000 | Rs 1,68,000 | Rent test |
| Rs 30,000 | Rs 3,60,000 | Rs 2,88,000 | Rs 2,88,000 | Rent test |
| Rs 40,000 | Rs 4,80,000 | Rs 4,08,000 | Rs 3,60,000 | HRA received |
| Rs 60,000 | Rs 7,20,000 | Rs 6,48,000 | Rs 3,60,000 | HRA received |
Past about Rs 36,000 of monthly rent, this employee gets nothing extra: another Rs 20,000 a month buys zero exemption. If you are house-hunting on the assumption that a bigger rent cheque is part tax-funded, run this table on your own basic pay first, then filter rental flats in Delhi against that ceiling.
Which cities are metros
For HRA, "metropolitan city" means Delhi, Mumbai, Kolkata and Chennai. That is it. The definition has not been revised in decades, so Bengaluru, Hyderabad, Pune, Ahmedabad, Gurgaon and Noida all sit at 40%, even where market rents match or beat the four listed cities. Gurgaon tenants are the sharpest example: a Golf Course Road rent that would qualify at 50% two hours away in Delhi qualifies at 40% in Haryana.
If you changed cities mid-year, compute month by month. Six months in Mumbai at 50% and six in Pune at 40% is not a blended annual calculation.
The landlord PAN rule
Where rent paid in a financial year exceeds Rs 1,00,000, you must report the landlord's name, address and PAN to your employer. The threshold is aggregate annual rent, and it is low: Rs 8,334 a month crosses it.
If the landlord genuinely has no PAN, the substitute is a signed declaration giving name and address and stating that none has been allotted. Employers accept it, but on a Rs 40,000-a-month metro flat it is a red flag, and assessing officers know it.
What Form 12BB asks for
Form 12BB is the statutory declaration an employee gives the employer for every exemption and deduction to be considered while deducting TDS on salary. For HRA it asks four things: rent paid to the landlord, the landlord's name, the landlord's address, and the landlord's PAN where aggregate rent exceeds Rs 1 lakh. It is signed and it is a declaration of correctness — the liability for a false entry sits with you, not payroll.
Keep alongside it: monthly receipts, the agreement, and bank statements showing the transfer. The bank trail is what settles arguments. A revenue stamp on a cash receipt above Rs 5,000 is customary and costs a rupee, but it proves nothing about whether money moved.
Rent above Rs 50,000 a month brings TDS
An individual tenant paying more than Rs 50,000 a month must deduct tax at source on the rent using Form 26QC, then issue Form 16C to the landlord. The rate fell from 5% to 2% with effect from October 2024, and deduction is made once a year. Miss it and you carry interest plus a late-filing fee — the mechanics are in our guide to TDS on rent under Section 194-IB.
Paying rent to a parent
This is legal, common, and survives scrutiny when three conditions hold. The parent must own the property. The rent must actually move, by bank transfer, every month. And the parent must declare it as income from house property in their own return.
The arithmetic often works in the family's favour. Your parent gets a flat 30% standard deduction on the annual rental value under Section 24(a), and if their total income sits below the basic exemption limit, the rent may be taxed at nil while you claim an exemption at 30%. On Rs 3,60,000 of rent, the family can be ahead by well over Rs 1 lakh a year.
What kills these claims is sloppiness: no agreement, cash "payments", a parent who does not file, or a property the parent does not own. Rent paid to a spouse is a different matter and is disallowed more often than not, on the reasoning that a couple sharing a home are not landlord and tenant. Treat it as a fight, not a plan. If the property is jointly held, read our note on joint ownership and tax before deciding who issues the receipt.
Under the new regime, HRA is gone
The default regime under Section 115BAC does not allow the Section 10(13A) exemption. Nor does it allow Section 80GG, the fallback deduction for people who pay rent but get no HRA, which is capped at the lowest of Rs 5,000 a month, 25% of total income, or rent minus 10% of total income — Rs 60,000 a year at best, and only in the old regime.
So the choice is arithmetic, not preference. Add up your HRA exemption, 80C, the home loan interest and 80D, compare the tax under both regimes, and pick. For a metro tenant paying Rs 35,000 rent on a Rs 60,000 basic, the HRA exemption alone is worth about Rs 1.09 lakh of tax in the 30% slab, which is a large deficit for the new regime's lower rates to make up. Employees with modest rent and few deductions usually land the other way. The wider changes to property taxation are covered in our piece on the new tax rules for real estate.
What actually gets flagged
- Rent receipts with no bank trail. Cash claims of Rs 30,000 a month are the first thing a notice asks about.
- A PAN that reports no rental income. Your Form 12BB entry and the landlord's return are both on the same system.
- Rent claimed while you also claim interest on a self-occupied home in the same city. It is defensible in specific cases — a workplace at the other end of a metro, a let-out property — but you will be asked to explain.
- A "no PAN" declaration on a high rent. Rare and conspicuous.
- An unstamped or missing agreement. Whether your agreement is registered or merely notarised changes what it proves; our comparison of registered versus notarised rent agreements covers the difference, and the new rent rules have made registration compulsory in several states.
FAQ
Can I claim HRA without a rent agreement?
Employers usually accept receipts alone for rent under Rs 1 lakh a year. Above that, expect to produce an agreement and the landlord's PAN. In an assessment, the agreement plus bank transfers carries the claim.
Is Bengaluru a metro for HRA?
No. Only Delhi, Mumbai, Kolkata and Chennai qualify for the 50% test. Bengaluru, Hyderabad, Pune, Gurgaon and Noida are all computed at 40% of salary.
Can I claim HRA and a home loan at the same time?
Yes, where the facts support it — you rent where you work and own elsewhere, or you own in the same city but genuinely cannot occupy it. Both claims stand on their own merits, and both should be documented.
What if my landlord refuses to share a PAN?
Ask for the declaration that no PAN has been allotted, with name and address. If the landlord will not give either and the rent crosses Rs 1 lakh a year, you cannot support the claim properly, and that is worth factoring into the rent you agree.
Does the deposit count as rent for the exemption?
No. Only rent actually paid counts. A refundable security deposit, brokerage and maintenance charged separately are all outside the Rule 2A calculation.
Before you sign the next lease
Work out your ceiling — the point past which extra rent buys no extra exemption — and negotiate the rent, the PAN and the agreement together rather than sorting the paperwork out in January. If you want a second pair of eyes on where a rental budget goes furthest across Delhi NCR, talk to us at Realty Hunting before you commit to the lease.
