Can You Claim HRA Exemption Under New Tax Regime and With Home Loan? Explained

The government has introduced a new tax system called the new tax regime (under Section 115BAC), which offers lower tax rates but removes many common tax benefits. Because of this, many salaried people are unsure if they can still claim deductions like House Rent Allowance (HRA). This article explains whether HRA is allowed under the new regime and whether you can claim both HRA and home loan benefits if you choose the old tax system.

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Is HRA Tax Exemption Available Under the New Tax Regime?

No, HRA tax exemption is not available under the new tax regime. The new regime, governed by Section 115BAC, was introduced to offer lower tax rates in exchange for foregoing various exemptions and deductions. Among those disallowed are:

• Section 10(13A) – House Rent Allowance (HRA)
• Section 10(5) – Leave Travel Concession (LTC)
• Section 10(14) – Certain special allowances (e.g., children’s education, hostel allowance, uniform allowance)
• Section 24(b) – Interest on home loan for self-occupied property (Note: Interest on let-out property is still allowed)
• Section 57(iia) – Family pension deduction
• Chapter VI-A Deductions – Including popular sections like 80C, 80D, etc., except Section 80CCD(2) (employer contribution to NPS)

Thus, if you opt for the new tax regime, you cannot claim HRA exemption, regardless of how much rent you pay or whether your salary includes an HRA component.

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Can You Claim Both HRA and Home Loan Deductions?

Yes, but only under the old tax regime. There’s a common misconception that taxpayers must choose between HRA exemption and home loan interest deduction. In reality, you can claim both, provided you meet the eligibility criteria under the old tax regime.

Example Scenario

You live in a rented apartment near your office in Delhi, but your family stays in your own house in Jaipur, and you are repaying a home loan for it. In such a case:

• You can claim HRA exemption for the rented house.
• You can also claim Section 24(b) deduction for interest paid on the home loan for your owned property.

This is permissible when there is a genuine reason for not residing in the owned property, such as employment in another city. Rental income from a let-out property, if applicable, must be disclosed in your return.

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Comparison: Old vs. New Tax Regime

Here’s a comparison table to help you understand the differences in deductions and exemptions under each regime:

Feature	Old Tax Regime	New Tax Regime
HRA Exemption	Yes	No
80C Deduction	Yes	No
80D Deduction	Yes	No
Home Loan Interest Deduction (Self-Occupied)	Yes (Sec 24b)	No
Home Loan Interest Deduction (Let-Out)	Yes (Sec 24b)	Yes
Lower Tax Rates	No	Yes
Standard Deduction	Rs. 50,000	Rs. 50,000 (introduced in FY24 via Budget 2023)

Who Should Opt for What? (Scenario-Based Guidance)

Young professionals without investments: Likely better off under the new regime due to lower tax rates and fewer deductions to claim.
Homeowners with dependents and high deductions: May benefit more under the old regime where they can claim HRA, 80C, home loan interest, and medical insurance.
Freelancers or consultants paying rent: If they are not salaried and do not get HRA, they may still claim rent deduction under Section 80GG in the old regime.

Section 80GG: Rent Deduction for Non-HRA Cases

Section 80GG allows the deduction of rent paid for self-occupied accommodation by taxpayers who do not receive HRA. Applicable only under the old regime, it can be claimed by:

• Self-employed individuals
• Salaried individuals who don’t receive HRA

Calculation of Deduction under Section 80GG

Deduction is allowed as the least of the following three:

1. Rs. 60,000 per annum (Rs. 5,000 per month)
2. 25% of adjusted total income
3. Actual rent paid minus 10% of adjusted total income

Adjusted total income means total income excluding long-term capital gains, short-term capital gains under Section 111A, and deductions under Sections 80C to 80U.

How is HRA Tax Exemption Calculated? (Old Regime)

Under the old tax regime, HRA exemption is calculated as the least of the following three:

1. Actual HRA received from the employer
2. 50% of salary (for metro cities) or 40% (for non-metros)
3. Rent paid minus 10% of salary

Note: Salary includes basic salary and applicable dearness allowance (DA), forming part of retirement benefits.

Example Calculation

• Annual HRA received: Rs. 3,20,000
• Annual rent paid: Rs. 3,60,000
• Basic salary: Rs. 8,00,000
• City: Metro (e.g., Mumbai)

Calculation:

• Actual HRA: Rs. 3,20,000
• 50% of salary: Rs. 4,00,000
• Rent paid – 10% of salary: Rs. 3,60,000 – Rs. 80,000 = Rs. 2,80,000

Exempt HRA = Rs. 2,80,000 (lowest of the above three)
Taxable HRA = Rs. 40,000 (Rs. 3,20,000 – Rs. 2,80,000)

Documents Required to Claim HRA Exemption

To successfully claim HRA exemption under the old tax regime, you need to maintain and present the following documents:

• Rent Agreement
• Monthly Rent Receipts
• Landlord’s PAN (if annual rent exceeds Rs. 1 lakh)
• Proof of Rent Payment (especially when paying rent to relatives)
• TDS deduction certificate if rent exceeds Rs. 50,000/month (under Section 194IB)

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Tax Planning Tips

• Always transfer rent through verifiable modes (NEFT, bank transfer)
• If paying rent to parents, formalize it through a legal rent agreement and ensure they report the rental income
• Maintain rent receipts monthly, not just at year-end
• Check TDS applicability on higher rents

Conclusion

The decision between the old and new tax regimes must be based on your individual circumstances. If you receive HRA and also pay a home loan, the old regime may provide substantial tax savings. If you don’t claim many deductions, the new regime with lower tax slabs may work better.

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