Tax SavingIntermediate

Chapter 4 of 8

HRA, Home Loan, and Standard Deduction

Claim HRA and home loan benefits correctly.

12 min read Chapter 4

Arjun moved from Pune to Mumbai for his new job and started paying ₹22,000/month in rent. His HR team asked

him to submit rent receipts for HRA exemption. Meanwhile, his colleague Suresh had a home loan on his Pune

apartment and was claiming a different set of deductions under Section 24(b). Both are legitimate tax benefits

under the Old Tax Regime — but you cannot claim both for the same property, and you need to know the

exact calculation formula to claim the right amount.

House Rent Allowance (HRA) Explained

HRA (House Rent Allowance):

An allowance paid by employers to employees to meet rental expenses; the portion of HRA that qualifies for exemption under Section 10(13A) of the Income Tax Act is excluded from taxable income — only available under the Old Tax Regime.

The HRA exemption is the minimum of three amounts calculated separately. You cannot simply

claim the full HRA received — the formula caps it.

Limit 1: Actual HRA received from employer
Limit 2: 50% of basic salary (if you live in a metro — Delhi, Mumbai, Kolkata, Chennai) or 40% of basic salary (all other cities)
Limit 3: Actual rent paid minus 10% of basic salary

The exempt HRA = lowest of all three limits. The difference between HRA received and HRA exempt is added back

to your taxable income.

Example: HRA Calculation — Arjun in Mumbai (Metro)

Basic Salary: ₹50,000/month (₹6,00,000/year) HRA received: ₹25,000/month (₹3,00,000/year) Rent paid: ₹22,000/month (₹2,64,000/year) City: Mumbai (metro → 50% of basic applies)

Calculate the three limits (monthly):

Limit 1 — Actual HRA received: ₹25,000
Limit 2 — 50% of basic (metro): 50% × ₹50,000 = ₹25,000
Limit 3 — Rent minus 10% of basic: ₹22,000 − (10% × ₹50,000) = ₹22,000 − ₹5,000 = ₹17,000

Exempt HRA = Minimum of (₹25,000, ₹25,000, ₹17,000) = ₹17,000/month Annual exempt HRA = ₹17,000 × 12 = ₹2,04,000 Taxable HRA = ₹3,00,000 − ₹2,04,000 = ₹96,000

Metro vs Non-Metro HRA Rates

City Type	Cities Included	HRA Limit (% of Basic)	Example (₹50K basic)
Metro	Delhi, Mumbai, Kolkata, Chennai	50%	₹25,000/month
Non-Metro	Bengaluru, Hyderabad, Pune, others	40%	₹20,000/month

Bengaluru Is NOT a Metro for HRA

Despite being a major city, Bengaluru, Hyderabad, Pune, and Ahmedabad are classified as non-metros for HRA purposes — only Delhi, Mumbai, Kolkata, and Chennai are metros. Employees in these cities get only 40% instead of 50%.

Home Loan Interest — Section 24(b)

Section 24(b):

Allows deduction of home loan interest paid during the year from income from house property — up to ₹2,00,000 per year for a self-occupied property; no upper limit for a let-out (rented) property under the Old Regime.

The ₹2 lakh cap applies only to self-occupied properties. If you have a let-out property, you can deduct the

full interest, but the net rental income/loss after deduction is clubbed with your other income (with loss

set-off capped at ₹2 lakh against salary income).

Example: Home Loan Interest + Principal — Suresh's ₹30L Loan

Loan Amount: ₹30,00,000 Interest Rate: 8.5% per annum Loan Tenure: 20 years

Year 1 approximate breakup (EMI ~₹26,000/month, total ~₹3,12,000/year):

Interest component: ~₹2,50,000 (early years are interest-heavy)
Principal repayment: ~₹62,000

Tax deductions available:

Section 24(b) — Interest: ₹2,50,000 → capped at ₹2,00,000
Section 80C — Principal: ₹62,000 (counts toward ₹1.5L 80C limit)

Total deductions from home loan alone: ₹2,00,000 + ₹62,000 = ₹2,62,000 At 30% bracket, tax saved = ₹2,62,000 × 31.2% ≈ ₹81,744

Standard Deduction

Standard Deduction:

A flat deduction from salary income available to all salaried employees and pensioners without needing to provide any proof of expenditure — ₹50,000 under the Old Regime and ₹75,000 under the New Regime (effective FY 2024-25, as revised in Budget 2024).

The standard deduction replaced the earlier transport allowance (₹19,200) and medical reimbursement (₹15,000) with a simpler, higher flat deduction. It is automatic — no action needed.

HRA + Home Loan Interest on Same Property Not Allowed

You cannot claim HRA exemption and Section 24(b) home loan interest deduction simultaneously for the same property. If you own a house in Mumbai and live in it (no rent paid), you get 24(b) but not HRA. However, if you work in Mumbai but own a house in Pune (where you don't live), you can claim both — HRA for Mumbai rent and 24(b) for Pune home loan interest. Consult a CA for such cases.

Quick Quiz

What is the maximum home loan interest deduction under Section 24(b) for a self-occupied property?

Key Takeaways

HRA exemption is the minimum of: actual HRA received, 50%/40% of basic (metro/non-metro), and actual rent minus 10% of basic — always calculate all three and take the lowest.
Section 24(b) allows up to ₹2 lakh home loan interest deduction for self-occupied property; home loan principal up to ₹1.5 lakh qualifies under Section 80C.
You can claim both HRA (for rented accommodation where you live) and Section 24(b) (for a home loan on a property you don't currently live in) simultaneously.
Standard deduction (₹75,000 in New Regime; ₹50,000 in Old Regime) is automatic — no documentation required.

Ch 3: Section 80C — Complete Guide

Ch 5: Section 80D — Health Insurance Tax Benefit