HRA Exemption and Rent Receipts Guide: Rules, PAN Limit and Declarations
Under the Income-tax Act, 2025 and Income-tax Rules, 2026 (effective 1 April 2026, replacing the Income-tax Act, 1961), salaried employees who receive House Rent Allowance (HRA) as part of their salary structure can claim tax exemptions against residential rent paid. (Historical Note: For FY 2025-26 and earlier, HRA exemption was governed under Section 10(13A) of the 1961 Act).
To claim this deduction during employer tax declaration cycles, employees must submit valid documentary proof, including monthly rent receipts and tenancy agreements. In addition, disclosing the relationship between landlord and tenant is required in employer declarations.
1. How HRA Tax Exemption is Calculated
Under current rules (Rule 279 of the Income-tax Rules, 2026 — Check the official source to confirm.), the exempt HRA component is calculated as the lowest of the following three amounts:
- Actual HRA received from your employer during the financial year;
- 50% of basic salary + dearness allowance (DA) if the rented residential property is located in Mumbai, Delhi, Kolkata, Chennai, Hyderabad, Bengaluru, Pune, or Ahmedabad, or 40% of basic salary + dearness allowance (DA) for any other location;
- Actual rent paid minus 10% of basic salary + dearness allowance (DA).
Historical Note: For FY 2025-26 and earlier under the 1961 Act and Rule 2A, the 50% limit applied only to four traditional metro cities (Mumbai, Delhi, Kolkata, Chennai), with 40% applied to all other locations.
Note: HRA exemption is available only when opting for the Old Tax Regime. Under the New Tax Regime, HRA exemptions are not permitted.
2. Landlord PAN Threshold: The ₹1,00,000 Mandate
Under Central Board of Direct Taxes (CBDT) circular mandates, if your total residential rent paid during the financial year exceeds ₹1,00,000 (which averages to approximately ₹8,334 per month):
- Landlord's PAN is Mandatory: You must declare the landlord's Permanent Account Number on your rent receipts and in your employer's tax declaration.
- If the Landlord Does Not Have a PAN: The landlord must provide a signed declaration stating that they have no PAN, accompanied by their full name and address (confirm with your employer or a CA — Check the official source to confirm.).
- TDS on Rent: TDS applies to rent above the monthly threshold; check the current rate on incometax.gov.in (Check the official source to confirm.).
3. Revenue Stamp Guidelines: Cash vs. Digital Payments
A frequent source of confusion among employees is whether a revenue stamp is required on rent receipts:
- Cash Payments: Verify with a CA whether a revenue stamp is required for cash payments in your state.
- Digital and Banking Payments (UPI, NEFT, IMPS, Cheque): When rent is transferred electronically through bank accounts, digital banking records provide proof of transaction. Consult your employer's HR or travel/claims policy regarding signed receipt requirements.
4. Paying Rent to Relatives & Relationship Disclosure
It is permissible to pay residential rent to your parents and claim HRA exemption, provided the arrangement is genuine and satisfies legal conditions:
- Parent Must Own the Property: The house property must be legally owned by your parent (or parents). You cannot claim HRA if you are an owner or co-owner of the property.
- Formal Tenancy Agreement: Execute a formal written tenancy agreement outlining monthly rent, terms, and property details.
- Bank Transfers: Transfer the rent monthly via electronic bank transfer (NEFT, UPI) into your parent's bank account to maintain documented banking trails.
- Rental Income Declaration: The rent you pay is taxable income in your parent's hands under house property income.
- Relationship Disclosure: When claiming rent paid to related parties, landlord-tenant relationship disclosure is required.
- Rent Paid to a Spouse: Rent paid to a spouse is often questioned; consult a CA.