HRA Exemption & EPF Rules Explained — Tax Year 2026/27
HRA Exemption — Section 10(13A)
HRA exemption is only available under the Old Tax Regime. If you choose the New Tax Regime, your entire HRA is fully taxable.
House Rent Allowance (HRA) is a component of your salary. If you live in a rented house, you can claim a portion of it as tax-exempt under Section 10(13A) of the Income Tax Act.
The Three-Rule Formula
The exempt amount is the lowest of these three:
Worked Example
| Item | Amount (Annual) |
|---|---|
| Basic Salary | ₹6,00,000 |
| HRA Received | ₹2,40,000 |
| Rent Paid | ₹3,00,000 |
| ① Actual HRA | ₹2,40,000 |
| ② 50% of Basic (Metro) | ₹3,00,000 |
| ③ Rent − 10% of Basic (₹3L − ₹60K) | ₹2,40,000 |
| HRA Exempt (minimum of above) | ₹2,40,000 |
| Taxable HRA | ₹0 |
Key Rules to Remember
- You must actually live in a rented house — own-house residents cannot claim HRA.
- If monthly rent exceeds ₹8,333 (₹1L/year), you must provide landlord's PAN.
- You cannot claim both HRA exemption and home loan interest benefit (Section 24b) for the same property.
- Rent paid to a parent is allowed, but you need a rent agreement and receipts.
EPF — Employee Provident Fund
EPF is a mandatory retirement savings scheme under the Employees' Provident Funds Act, 1952. Both you and your employer contribute each month.
Contribution Structure
| Component | Rate | Deducted From |
|---|---|---|
| Employee EPF | 12% of Basic | Your take-home pay |
| Employer EPF (EPS + EPF) | 12% of Basic | Part of your CTC |
| — Employee Pension Scheme (EPS) | 8.33% (max ₹1,250/month) | From employer's 12% |
| — EPF account deposit | 3.67% (balance) | From employer's 12% |
The statutory EPF wage ceiling is ₹15,000/month of basic salary. However, most companies (especially IT sector) contribute 12% on the full basic. This calculator uses 12% of your full basic salary.
EPF Tax Benefits
Voluntary Provident Fund (VPF)
You can contribute more than 12% of basic to your EPF account voluntarily — this is called VPF. The extra contribution also earns the same EPF interest rate (~8.25%) and qualifies under Section 80C (subject to ₹1.5L cap). VPF is one of the highest-returning tax-free instruments available to salaried employees.