House rent allowance (HRA) can be a significant tax-saving component for salaried employees, but its availability is strictly limited by tax regime selection. According to reports from Mint and Business Standard, tax exemption on HRA is available only under the old tax regime, meaning employees who opt for the new tax regime must pay tax on the entire HRA received as part of their salary. Since this salary component is intended to help employees meet rental expenses in their employment city, paying rent for multiple properties can complicate HRA claims significantly. The new tax regime completely eliminates HRA exemption, making it a fully taxable component of salary for all employees.
There is no blanket prohibition on claiming HRA merely because the landlord is a parent, as reported by Mint. The key conditions are that the employee actually lives in the rented accommodation, genuinely pays rent, and does not own the house where they are claiming the exemption. The HRA provisions focus on whether the employee pays rent for accommodation actually occupied and whether the employee owns the property for which the exemption is claimed. However, a parent who receives rent should own the property or have a valid legal right to let it out. Paying rent to a parent without ownership or other legitimate rights of letting could make the claim difficult to substantiate. For the cleanest and most defensible case, the arrangement works best where the parent owns or co-owns the property with valid legal rights to let it out, with ownership shares being definite to make rental agreements and reporting cleaner.
HRA exemption is allowed under Section 10(13A) of the Income-tax Act, subject to specific conditions as reported by Mint and Business Standard. The key requirement is that the allowance must be specifically granted by the employer to meet the employee's actual rental expenses for residential accommodation occupied by them. Under the current 2026 rules, the employee declaration for HRA specifically asks for landlord details, rent paid, and the relationship with the landlord, with PAN required where aggregate annual rent exceeds ₹1 lakh. The exemption is available only for employees living in Delhi, Mumbai, Kolkata, and Chennai, with other major cities like Bengaluru, Hyderabad, and Pune following different calculation limits. Essential documentation includes rent agreement, actual bank transfers of rent, rent receipts, proof of ownership/co-ownership, landlord PAN details, and consistent reporting of rental income by the parent. Employees should preserve a rent agreement, rent receipts, bank transfer records, proof of the parent's ownership or legal right to let out the property, and the landlord's PAN and other details where required.
The HRA exemption calculation follows specific guidelines outlined in 'Schedule 10(13A)' of the ITR form, as detailed by Mint and Business Standard. The exempt amount is determined as the least of three amounts: actual HRA received, rent paid minus 10% of salary, or 50% of salary for metro cities (Delhi, Mumbai, Kolkata, Chennai) or 40% of salary for non-metro cities. For this calculation, salary generally includes basic salary, eligible dearness allowance, and commission, where applicable, as specified under the tax rules. The calculation involves adding basic pay and dearness allowance, subtracting rent paid, and comparing against the three statutory limits to determine the smallest amount as the exempt HRA. This schedule applies to taxpayers filing ITR-1 or ITR-4 for the relevant assessment year, with ITR-1 applicable to salaried taxpayers with total income up to ₹50 lakh and ITR-4 for eligible individuals under presumptive taxation schemes.
A practical example demonstrates the significant tax benefits of parent-to-child rental arrangements. Consider a salaried employee in Bengaluru with basic salary of ₹80,000 monthly, HRA of ₹40,000 monthly, and rent payment of ₹35,000 monthly to a parent. The annual figures are ₹4.8 lakh in HRA, ₹4.2 lakh in rent and ₹9.6 lakh in basic salary. Under the old tax regime, the HRA exemption would be the lowest of ₹4.8 lakh, ₹3.24 lakh, and ₹3.84 lakh, allowing the employee to claim ₹3.24 lakh HRA exemption. The remaining ₹1.56 lakh of HRA would be taxable at a marginal rate of 30%, potentially reducing income tax by ₹97,200, or approximately ₹1,01,088 including 4% health and education cess. The parent would report rental income of ₹4.2 lakh under Income from House Property, with a 30% standard deduction available and other eligible adjustments. As noted by Mint, the employee gets the HRA exemption while the parent reports rental income, potentially reducing the family's combined tax outgo, though the benefit depends on both individuals' tax positions and the genuineness of the arrangement.
