In 2025, the tax laws and regulations continue to evolve, creating opportunities for individuals to save on taxes. One such opportunity comes from claiming House Rent Allowance (HRA), which is often a significant part of an individual's salary. However, many individuals living in paying guest (PG) accommodations wonder whether they can claim PG rent as HRA. In this article, we’ll dive deep into this question and understand the nuances of HRA and whether PG rent can be included in it.
Understanding HRA: What is House Rent Allowance?
House Rent Allowance (HRA) is a component of an employee’s salary that is provided by employers to cover rental expenses incurred by the employee while living in a rented property. HRA is a tax benefit that allows individuals to claim exemptions, reducing their taxable income.
To qualify for the HRA exemption under Section 10(13A) of the Income Tax Act, you must meet certain conditions, including renting a property, paying rent, and receiving HRA from your employer. The exemption amount is calculated based on the rent paid, the salary, and the location of your rented property.
PG Rent and HRA: The Key Differences
Before we explore whether PG rent can be claimed as HRA, it’s essential to understand the fundamental difference between renting an apartment or house and staying in a PG accommodation.
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Rented Accommodation: When you rent an apartment or house, you usually sign a formal lease agreement with the landlord. Rent payments are made monthly, and the arrangement provides you with more privacy, freedom, and rights as a tenant.
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PG Accommodation: PGs are typically informal living arrangements where individuals rent a room in a house or apartment. PG accommodation often includes shared facilities such as kitchens, bathrooms, and common areas. The rent structure in PGs is more flexible and can be paid on a weekly or monthly basis, often without a formal lease agreement.
The question arises: Can PG rent qualify for HRA exemption just like rented accommodation?
Can PG Rent Be Claimed as HRA in 2025?
Yes, it is possible to claim PG rent as HRA, but there are certain conditions and nuances that need to be considered. The Income Tax Department provides provisions under Section 10(13A) of the Income Tax Act for claiming HRA exemptions. While the law doesn’t directly mention PG accommodations, it offers flexibility in its interpretation.
Here are the key factors that come into play:
1. PG Rent Must Be Paid Regularly
Just like renting a house or apartment, you must pay PG rent regularly to claim HRA exemptions. The rent paid should be supported by proper documentation, such as receipts or bank statements. If you are paying the rent in cash, make sure you have a record of the payments made.
2. Rent Agreement or Documentation
For rented properties, a formal lease agreement is essential. However, PG accommodations often do not have a written lease. In such cases, you can still claim HRA for PG rent by submitting a rent receipt or some other form of documentation proving that you are paying rent for the PG. It is advisable to request the PG owner or manager to issue a rent receipt every month.
3. PG Rent and HRA Limitations
When claiming PG rent as HRA, the tax exemptions are subject to the following limits:
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HRA Paid by Employer: The employer must provide you with HRA as part of your salary. The amount of HRA claimed cannot exceed the amount received.
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Exemption Calculations: The exemption amount is determined by calculating the least of the following three:
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Actual HRA received
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Rent paid minus 10% of basic salary
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50% of the salary (for metro cities) or 40% (for non-metro cities)
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4. Shared Accommodation
PG accommodations usually involve shared living spaces like kitchens or bathrooms. If you share the PG accommodation with others, the rent you pay will be proportionate to your share of the rent. This will be considered while calculating the exemption. You cannot claim the entire rent if you are only occupying a part of the space.
5. Landlord’s Tax Status
For HRA to be valid, the person receiving rent (i.e., the PG owner) must report the rental income for tax purposes. If the PG owner does not pay taxes or is not registered, the tax department may disallow the HRA exemption.
6. No Double Exemption
If you are claiming HRA for PG rent, you cannot claim any other deduction for housing expenses (such as under Section 80GG) simultaneously. The exemption under HRA is considered comprehensive for rent-related tax relief.
7. Income Tax Officer's Discretion
In some cases, an Income Tax Officer (ITO) might question the authenticity of the claim. If there is any doubt about the legitimacy of your PG accommodation or rent paid, you may be asked to submit additional evidence, such as rent receipts or a declaration from the PG owner.
Steps to Claim PG Rent as HRA in 2025
To claim PG rent as HRA in 2025, follow these steps:
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Verify Eligibility: Ensure you are receiving HRA from your employer and are paying rent for the PG accommodation.
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Gather Documentation: Collect rent receipts or a written declaration from the PG owner. If paying through digital transactions, keep records of payment methods like bank transfers or UPI receipts.
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Declare HRA: When filing your income tax returns, declare the HRA received and the PG rent paid in the relevant sections. Ensure the calculations meet the conditions for claiming the exemption.
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Keep Records: Maintain records of rent receipts and payment details for at least 3-5 years in case the tax authorities request further proof.
When PG Rent Cannot Be Claimed as HRA
While PG rent can be claimed in certain circumstances, there are specific instances where it will not qualify for HRA exemptions:
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If PG Rent Is Not Paid Regularly: If rent is not paid regularly, or you do not have proof of payment, the exemption will not be allowed.
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No Rent Receipt or Documentation: Without proper rent receipts or documented evidence of the rent paid, the exemption claim may be rejected.
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Not Paying HRA: If your employer does not provide you with HRA or includes it in your salary, you cannot claim the exemption.
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Illegal or Unregistered PG Accommodation: If the PG accommodation is unregistered or the landlord does not report the rental income to tax authorities, the exemption claim might be disallowed.
Conclusion
In 2025, claiming PG rent as HRA is possible, but it comes with specific rules and conditions. To successfully claim the exemption, ensure that you have proper documentation like rent receipts, proof of regular payments, and a legitimate PG accommodation arrangement. The tax benefits of HRA can significantly reduce your taxable income, so it’s worth making sure you understand the nuances of claiming PG rent as HRA.
Always consult a tax expert or financial advisor if you're unsure about the process or need assistance with the documentation. With the right approach, you can make the most of your HRA exemptions, even while staying in a PG.
