With the growing shift toward India’s new tax regime under Section 115BAC, confusion has emerged among salaried taxpayers regarding the eligibility of HRA (House Rent Allowance) exemption. In light of recent debates and social media speculation, the Central Board of Direct Taxes (CBDT) issued a formal clarification, addressing concerns and outlining the applicability of HRA under the new regime.

This article aims to provide a comprehensive explanation of HRA treatment under the new vs old tax regime, insights into the CBDT’s clarification, ITR filing changes, and practical advice for taxpayers.

🔹 What is House Rent Allowance (HRA)?

HRA is a component of salary provided by employers to employees to meet housing expenses. Under the old tax regime, salaried individuals could claim exemption on HRA under Section 10(13A), depending on factors such as:

• HRA received

• Rent paid

• Location of residence (metro or non-metro)

• Basic salary + DA

The least of the following is exempt:

1. Actual HRA received

2. 50% of salary (for metro cities) or 40% (non-metro)

3. Rent paid minus 10% of salary

🔹 Transition to the New Tax Regime

In 2020, the government introduced a concessional tax regime under Section 115BAC, offering lower slab rates in exchange for foregoing most exemptions and deductions. From FY 2023–24 (AY 2024–25), this new regime became the default option for individual taxpayers unless the old regime was specifically opted for.

One of the major deductions that taxpayers lost under the new regime is HRA exemption.

🔍 CBDT’s Clarification on HRA under New Tax Regime

Amid growing taxpayer anxiety, especially due to confusion over retrospective tax claims and IT notices, the CBDT issued an official clarification in April 2024 to dispel misconceptions.

✅ Key Highlights:

1. No HRA Exemption Under New Regime
   If you opt for the new tax regime, the entire HRA component in your salary is considered fully taxable. This is because Section 10(13A) (HRA exemption) is not allowed under Section 115BAC unless you opt back into the old regime.

2. No Special Scrutiny Drive
   Rumors were circulating that the Income Tax Department had initiated a large-scale review of old HRA claims. The CBDT clarified that there is no special or retrospective drive to scrutinize or reopen old HRA exemption claims. Only specific high-value mismatches identified through data analytics for FY 2020–21 were reviewed.

3. Routine Verification Only
   Tax authorities stated that some mismatches between employee-declared rent and landlord disclosures were flagged. These were handled through routine notices or verification—not through mass assessments.

🧾 Impact on ITR Filing

Recent updates to ITR forms (especially for AY 2025–26) reflect tighter compliance and more granular data entry.

🔸 New Disclosure Requirements:

For those opting for the old regime, claiming HRA now involves:

• Mentioning actual HRA received

• Rent paid per month

• Address of rented property

• PAN of landlord (if rent > ₹1 lakh annually)

• Metro vs Non-Metro selection (affects 40% or 50% limit)

These measures are aimed at preventing false or inflated HRA claims.

⚠️ Caution: Utility Glitch

Tax professionals recently flagged a glitch in the ITR utility: it prompts taxpayers for “place of work” instead of “place of residence” to determine whether metro city rules apply. This could lead to under- or over-reporting of exemption values. Until corrected, it’s advised to calculate HRA manually and cross-check.

🔄 Old Regime vs New Regime – What to Choose?

Let’s break down the pros and cons for a salaried employee:

However, if you don’t pay rent or don’t invest much, the new regime could be simpler and more beneficial.

💼 How This Affects Employers

From a payroll perspective, employers continue to structure salaries with an HRA component—even under the new regime. This is because:

• The structure remains the same regardless of regime choice

• It allows flexibility to employees who may switch between regimes annually

• Salary slips will show HRA, but it is not exempt if the employee opts for the new regime

Employers also report employee regime choices through Form 12BA and annual declarations.

🔐 CBDT’s Intent: Transparency, Not Harassment

CBDT’s recent actions reflect a larger shift toward data-driven compliance and voluntary transparency. The tax department is leveraging:

• Form 26AS

• Annual Information Statement (AIS)

• PAN-linked databases to verify rent paid vs rent received

However, the board reiterated that this is not meant to harass honest taxpayers, but rather to curb misuse of exemptions.

🧠 Expert Tips for Taxpayers

1. Verify your regime selection every year before filing ITR.

2. If under the old regime, keep proof of rent payment – rent agreement, rent receipts, landlord PAN (if applicable).

3. Use HRA calculators or consult a tax advisor to determine whether to switch regimes.

4. If under new regime, don’t mistakenly claim HRA – it may trigger a mismatch notice.

5. File accurate metro/non-metro status manually if ITR utility glitches persist.

📅 ITR Filing Deadline Extended

Due to changes in disclosure requirements and technical glitches, the ITR filing deadline for AY 2025–26 was extended to September 15, 2025. This gives salaried taxpayers extra time to:

• Gather documents

• Make informed regime choices

• Avoid compliance errors

✅ Conclusion

The CBDT’s clarification on HRA under the new tax regime provides much-needed relief and clarity to taxpayers. While HRA exemption is not available under the new regime, there is no retrospective scrutiny or mass investigation planned.

Taxpayers must now focus on making informed regime selections, accurate disclosures, and document preservation—particularly if they opt for the old regime.

As tax policies continue evolving toward simplification and digitization, awareness and proactive compliance remain your best tools for a stress-free tax season.

Need Help New or Old Regime?

If you’re an individual unsure how these changes affect your ITR or need guidance on compliance, filings or need any advisory feel free to reach out to TAXAJ.

Created & Posted by Sony Garg

Accounts & Finance Executive at TAXAJ

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