Is HRA Exemption Available Under New Tax Regime?

2025-05-08

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When it comes to saving taxes, the House Rent Allowance (HRA) is one of the most commonly used exemptions for salaried individuals in India. It’s especially useful if you live in rented accommodation, as it can significantly reduce your taxable income calculation. However, with the introduction of the new tax regime, many are left wondering if HRA is still a valid exemption. Or does switching to the new regime mean giving up this valuable tax benefit?

In this article, we’ll explain everything you need to know about HRA, how it works, what changes under the new tax regime, and how to decide which regime works best for you.

Key Takeaways

Under the new tax regime, HRA exemptions are not permitted. This means that any HRA received will be fully taxable.
If you opt for the old tax regime, you can still claim HRA exemption under Section 10(13A) of the Income Tax Act, provided you meet the necessary conditions.
Choosing the new tax regime without HRA exemption may increase your taxable income, especially if you live in rented accommodation.
Despite the removal of HRA exemption, the new tax regime offers a standard deduction of ₹50,000 for salaried individuals from AY 2024–25 onwards.
It's crucial to assess your financial situation, including salary structure and eligible deductions, before deciding between the old and new tax regimes.

What is HRA?

House Rent Allowance (HRA) is a component of your employer's salary that helps you cover the cost of living in a rented house. It’s particularly common in the salary structures of employees working in cities where accommodation costs are high.

But here’s the best part, HRA can help you save tax.

Under Section 10(13A) of the Income Tax Act, if you live in a rented house and pay rent, you can claim a partial exemption on your HRA, which reduces your taxable income calculation. However, there are a few conditions you must meet to be eligible for this exemption:

You must receive HRA as part of your salary.
You should be living in rented accommodation.
You cannot claim HRA if you live in your own house or are not paying rent.

Old vs. New Tax Regime: A Quick Refresher

Starting from FY 2020-21 (AY 2021-22), the Indian government introduced a new tax regime under Section 115BAC, offering lower slab rates but removing most deductions and exemptions.

Here’s what the new regime offers:

Annual Income	Old Regime Rate	New Regime Rate
Up to ₹2.5L	Nil	Nil
₹2.5L – ₹5L	5%	5%
₹5L – ₹7.5L	20%	10%
₹7.5L – ₹10L	20%	15%
₹10L – ₹12.5L	30%	20%
₹12.5L – ₹15L	30%	25%
₹15L+	30%	30%

However, the lower rates come at a cost, most exemptions and deductions that could reduce your taxable income calculation are not allowed under this regime.

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Is HRA Exemption Allowed in the New Tax Regime?

No, HRA exemption calculation cannot be claimed under the new tax regime, and that’s the simple answer. When the government rolled out the new tax regime under Section 115BAC in the financial year 2020-21, it offered concessional income tax slab rates in exchange for giving up various exemptions and deductions, including HRA.

This means that even if you receive House Rent Allowance as part of your salary and are paying rent, you cannot claim any tax exemption on HRA if you opt for the new tax regime.

Did You Know?

If your employer provides HRA, and you live in rented accommodation, the old regime may be more beneficial.

Source: Times of India

Why Does This Matter?

Let’s take an example. Suppose your salary includes:

Basic Salary: ₹6,00,000
HRA: ₹2,40,000
Rent paid: ₹2,00,000 per annum
City: Mumbai (a metro city)

Under the old regime, you might be able to claim an HRA exemption calculation of around ₹1,50,000 (approx., depending on exact calculation).

This would reduce your taxable income calculation and hence your tax liability.

Under the new regime, however, even though you are receiving ₹2,40,000 as HRA, the entire amount is taxable. There is no exemption allowed.

Which One is Better: Old or New Tax Regime?

Choosing between the old tax regime and the new tax regime can be a bit confusing, especially when exemptions like HRA are at stake. So, how do you decide which one is right for you?

Let’s break it down.

Old Tax Regime: Ideal for Tax-Savers

The old tax regime is great if you're someone who:

Lives in rented accommodation and claims HRA exemption
Invests in tax-saving instruments like PPF, ELSS, and life insurance
Pays home loan interest
Buys health insurance policies
Claims other deductions like the standard deduction, LTA, and 80D

Here, your gross income might look high, but your taxable income can drop significantly thanks to these deductions and exemptions. If you’re actively using these benefits, sticking to the old regime is likely more tax-efficient.

New Tax Regime: Simpler but No Exemptions

The new regime offers lower tax slab rates but eliminates most deductions and exemptions, including HRA. It suits those who:

Don’t invest much in 80C instruments
Don’t pay rent or can’t claim HRA
Have a relatively simpler salary structure
Prefer a hassle-free filing process without documentation
It’s also beneficial for young professionals, freelancers, or people in higher salary brackets who don’t have many deductions to claim.

Let’s say your annual salary is ₹10 lakhs, and you pay rent, invest in PPF, and buy health insurance.

Under the old regime, you might claim HRA (₹1.5L), 80C (₹1.5L), 80D (₹25,000), and standard deduction (₹50,000). Your taxable income would be reduced significantly.

Under the new regime, you get lower rates but no deductions, so your entire salary is taxed.

Depending on how much you're able to claim under deductions, the old regime can often result in less tax paid overall.

Can You Still Pay Rent and Save Tax Under the New Regime?

This is a crucial question, especially for salaried individuals living in rented accommodations who are thinking about switching to the new tax regime. As we've already discussed, House Rent Allowance (HRA) exemptions are not available under the new regime. That naturally leads to the question: Can you still save tax by paying rent under the new system?

If you're a salaried employee whose salary structure includes an HRA component, you cannot claim any exemption on the rent you pay under the new regime. The entire HRA amount becomes fully taxable. So in this case, even though you may be paying a substantial sum as rent, it won’t help you save any tax if you're under the new tax regime.

Now, let’s discuss a possible exception: Section 80GG. This provision applies to individuals who do not receive HRA as part of their salary. This includes self-employed individuals, freelancers, or salaried employees whose employers don’t offer HRA. Under the old regime, Section 80GG could be a useful tool for claiming deductions for rent paid.
However, here’s the catch: Section 80GG is also not allowed under the new tax regime. So, even if you fall under the category of people who don't receive HRA, you still can’t claim any deduction for rent if you opt for the new tax regime.

Should You Switch to the New Tax Regime?

Here’s a simple rule of thumb:

If you pay rent, invest in 80C instruments, and have health insurance, the old regime may save you more tax.
The new regime might be more convenient if you have minimal deductions, prefer straightforward filing, and your salary is not heavily loaded with HRA or other exemptions.

Final Words

The new tax regime simplifies things, but that simplicity comes at the cost of popular deductions, including HRA. As a salaried person, HRA can significantly reduce your tax burden, especially if you're living in high-rent cities like Mumbai, Delhi, or Bangalore.

So, before you switch, it’s always a good idea to calculate your taxes under both regimes and see which one benefits you. If you need help, consider using an income tax calculator or talking to a financial advisor from leading brands.

Glossary

House Rent Allowance (HRA): A salary component that offers tax exemption if you live in rented accommodation under the old tax regime.
Old Tax Regime: A tax system that allows deductions and exemptions like HRA, 80C, and 80D.
New Tax Regime (Section 115BAC): A simplified tax system with lower rates but no major exemptions or deductions.
Section 80GG: A deduction for rent paid by those not receiving HRA, allowed only under the old regime.
Taxable Income: The income amount on which you actually pay tax after applying eligible deductions.

FAQs

No, HRA exemption calculation is not allowed under the new tax regime. If you choose this regime, you must forgo popular exemptions like HRA, LTA, and standard deductions.

Yes, under the new tax regime, your entire HRA component becomes taxable. This may significantly increase your taxable income if you live in rented accommodation.

No, self-employed individuals cannot claim rent deductions under Section 80GG if they opt for the new regime. Section 80GG is also excluded from the list of allowable deductions.

Unfortunately, no. The new tax regime does not allow deductions for rent paid, even under Section 80GG, regardless of whether you receive HRA.

Not necessarily. If rent is a major portion of your expenses, staying with the old tax regime may be more tax-efficient due to the HRA exemption benefit.

Yes, salaried taxpayers are allowed to switch between the old and new tax regimes each financial year. You can return to the old regime and claim HRA if it benefits you.

Disclaimer - This article is issued in the general public interest and meant for general information purposes only. The views expressed in this blog are solely those of the writer and do not necessarily reflect the official policy or position of Canara HSBC Life Insurance Company Limited or any affiliated entity. We make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability, or availability with respect to the blog or the information, products, services, or related graphics contained in the blog for any purpose. Any reliance you place on such information is therefore strictly at your own risk. You should consult with a qualified professional regarding your specific circumstances before taking any action based on the content provided herein.

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