HRA, home-loan interest and rent without HRA: what you can still claim in FY 2026-27
Short answer. All three housing benefits survive only in the old regime: the HRA exemption, up to ₹2 lakh of interest on the home you live in, and up to ₹60,000 a year for rent when you get no HRA. The new regime allows none of them; it lets you deduct interest on a let-out house against its rent and nothing more. One change helps this year: from FY 2026-27 the 50% HRA limit covers eight cities, now including Hyderabad, Bengaluru, Pune and Ahmedabad.
What are the HRA exemption rules for FY 2026-27?
House rent allowance is exempt up to the least of three amounts, and only in the old regime. The rule moved from Section 10(13A) of the 1961 Act to Section 11 read with Schedule III of the Income-tax Act, 2025; the formula is unchanged.
- The HRA you actually received.
- Rent paid minus 10% of salary.
- 50% of salary if the rented home is in Delhi, Mumbai, Kolkata, Chennai, Bengaluru, Hyderabad, Pune or Ahmedabad; 40% anywhere else.
"Salary" here means basic pay plus dearness allowance that counts for retirement benefits, plus commission fixed as a percentage of turnover. Bonuses and other allowances are left out. The exemption is worked out for the period you actually paid rent, so a change of city, rent or salary mid-year means separate calculations. The last four cities joined the 50% list through the Income-tax Rules, 2026; for FY 2025-26 they were still at 40%.
How is the HRA exemption calculated? A Hyderabad example
Basic pay is ₹60,000 a month, HRA ₹30,000 a month and rent ₹35,000 a month, for the full year.
| Limb | Working | FY 2026-27 (50%) | Old rule (40%) |
|---|---|---|---|
| HRA received | ₹30,000 × 12 | ₹3,60,000 | ₹3,60,000 |
| Rent minus 10% of salary | ₹4,20,000 − ₹72,000 | ₹3,48,000 | ₹3,48,000 |
| 50% or 40% of salary | of ₹7,20,000 | ₹3,60,000 | ₹2,88,000 |
| Exempt HRA (the least) | ₹3,48,000 | ₹2,88,000 | |
| Taxable HRA | ₹12,000 | ₹72,000 |
The new city list adds ₹60,000 to this person's exemption. In the 30% slab that is ₹18,720 less tax, but only if the old regime is the better choice overall, which the example further down tests.
Can I claim HRA without a rent agreement? What proof is needed?
The Act does not make a rent agreement a condition. What it requires is that you actually pay rent for a home you live in and do not own. In practice your employer decides what evidence to accept before reducing TDS, and the department can ask for it later. Keep the following:
- Rent receipts and bank transfers. Pay through the bank. An agreement is not mandatory, but it is the simplest way to prove the tenancy.
- Landlord's PAN when rent exceeds ₹1 lakh a year.
- Form 124 (earlier Form 12BB), the declaration you give your employer. It now asks you to state your relationship with the landlord.
- Rent paid to a parent is acceptable when the parent owns the house, you really pay, and the parent reports the rent as income. Rent paid to a spouse, or for a house you co-own, invites questions.
If your employer did not allow the exemption, you can still claim it in your return. Compute it as above and keep the same evidence.
Is home loan interest tax deductible, and what is the limit?
Yes, under Section 22 of the 2025 Act (formerly s.24(b)). The limit depends on how the house is used and on your regime.
| House | Old regime | New regime |
|---|---|---|
| Self-occupied (up to two houses) | Interest up to ₹2 lakh a year in total, if the loan was for purchase or construction completed within five years from the end of the year of borrowing. Otherwise, and for repair loans, ₹30,000 | Not allowed |
| Let out | 30% of net rent as a standard deduction, plus the full interest | The same deductions |
| Loss from house property | Set off against salary or other income up to ₹2 lakh a year (Section 109); the balance is carried forward for eight years against house-property income (Section 110) | Cannot be set off against any other income, and is not carried forward |
| Principal repayment | Within the ₹1.5 lakh limit of Section 123 (formerly s.80C) | Not allowed |
Interest paid before the house was completed is claimed in five equal yearly instalments from the year of completion, inside the same ₹2 lakh ceiling for a self-occupied house. Co-owners who are also co-borrowers each get their own limit on their share.
Can HRA and home loan be claimed together?
Yes, in the old regime, because the two benefits rest on different facts: you pay rent for the house you live in, and you pay interest on a house you own. The law does not bar claiming both. Each claim has to stand on its own facts.
- Own house in another city. You work in Hyderabad and rent there; your flat is in Vijayawada. Both claims are straightforward.
- Own house in the same city. Allowed if there is a real reason to rent, such as distance from work, the house being let out, or family living in it. No kilometre rule exists in the law. If the house is let out, its rent is taxable.
- Under-construction house. HRA continues; interest becomes deductible only from the year of completion, in five instalments.
- Living in your own house. No rent is paid, so there is no HRA exemption, whatever the salary slip says.
Rent paid without HRA: what is the 80GG deduction, now Section 134?
It is a deduction for people who pay rent but receive no HRA: the self-employed, and employees whose salary has no HRA component. It is available only in the old regime. The deduction is the least of:
- ₹5,000 a month (₹60,000 a year);
- 25% of total income; and
- rent paid minus 10% of total income.
Total income here is taken before this deduction and leaves out capital gains taxed at special rates. You, your spouse, minor child or HUF must not own a home in the place where you live or work, and you must not be treating a house elsewhere as self-occupied. A declaration in Form 31 (earlier Form 10BA) is filed online before the return.
Example. A consultant with total income of ₹14,00,000 pays rent of ₹25,000 a month. The three amounts are ₹60,000, ₹3,50,000 and ₹1,60,000 (₹3,00,000 − ₹1,40,000). The deduction is ₹60,000, worth ₹18,720 at the 30% slab with cess. Because the cap is small, this deduction alone rarely makes the old regime cheaper.
Old or new regime with HRA and a home loan? A worked example
Take the Hyderabad employee above with a gross salary of ₹18,00,000, Section 123 investments of ₹1,50,000 and a health-insurance deduction of ₹25,000. The last column adds ₹2,00,000 of interest on a self-occupied flat in another city.
| New regime | Old regime | Old + home loan | |
|---|---|---|---|
| Gross salary | ₹18,00,000 | ₹18,00,000 | ₹18,00,000 |
| Standard deduction | −₹75,000 | −₹50,000 | −₹50,000 |
| HRA exemption | — | −₹3,48,000 | −₹3,48,000 |
| Sections 123 and 126 | — | −₹1,75,000 | −₹1,75,000 |
| Interest on self-occupied house | — | — | −₹2,00,000 |
| Taxable income | ₹17,25,000 | ₹12,27,000 | ₹10,27,000 |
| Tax including 4% cess | ₹1,50,800 | ₹1,87,824 | ₹1,25,424 |
With HRA, 80C and 80D alone, the new regime is still cheaper by ₹37,024. Add a home loan on a flat in another city and the old regime wins by ₹25,376. That is the general pattern at this salary: one housing benefit is rarely enough, two usually are. See old vs new regime for the break-even at other incomes, and home-loan prepayment vs SIP before you prepay a loan whose interest is saving you tax.
What is TDS on rent above ₹50,000, and how do I deduct it?
An individual or HUF tenant who pays rent of more than ₹50,000 a month to a resident landlord must deduct 2% tax from the rent (Section 393(1) of the 2025 Act, formerly s.194-IB). It applies to salaried tenants too, and the threshold is tested month by month.
- Deduct once a year, from the rent for March or for the last month of the tenancy if you leave earlier. On ₹60,000 a month the deduction is 2% of ₹7,20,000, that is ₹14,400. For a tenancy from August to March at ₹55,000 it is ₹8,800.
- Pay and report it in Form 141 (earlier Form 26QC), a challan-cum-statement filed with your PAN and the landlord's PAN on the e-filing portal within 30 days from the end of the month of deduction. No TAN is needed.
- Give the landlord the TDS certificate, Form 132 (earlier Form 16C), within 15 days of filing.
- If the landlord gives no PAN, the rate is 20%.
Late deduction costs interest of 1% a month, late payment 1.5% a month, and late filing a fee of ₹200 a day up to the amount of the tax. If the landlord is a non-resident, this rule does not apply: tax is deducted under Section 393(2) (formerly s.195) at 30% plus surcharge and cess on any amount of rent, and that route needs a TAN and the reporting that goes with foreign payments.
Related reading
- HRA exemption calculator — free, no sign-up
- Old vs new tax regime for FY 2026-27
- Home-loan prepayment vs SIP and its calculator
- Return mistakes that trigger notices
- NRI income-tax return in India
FAQ
Can HRA and home loan be claimed together?
Can I claim HRA and home loan in the new tax regime?
What is the 80GG deduction, and who is eligible?
What is the home loan interest deduction limit?
Which cities get 50% HRA in FY 2026-27?
Is the landlord's PAN mandatory for HRA?
What is TDS on rent above ₹50,000?
Sources: ClearTax: HRA under the Income-tax Act, 2025; Tax Update India: 50% HRA in eight cities and Form 124; Income-tax Act, 2025: s.22, s.109, s.110, s.134 and s.202; TaxGuru: house property, sections 20 to 24; Income Tax Department: new vs old regime FAQs; Income Tax Department: Form 141; CAclubindia: TDS on rent, FY 2026-27; TaxGuru: Form 141 timelines. All checked 19 Sep 2026. Examples use FY 2026-27 slabs and ignore surcharge.
Education only, not tax advice for your situation. Spotted an error? Write to us.
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