How to Save Tax Using HRA, LTA, and Standard Deduction

Introduction

As the tax season approaches, every salaried individual begins to look for smart and legal ways to reduce their taxable income. Three of the most effective tools available for this purpose are the House Rent Allowance (HRA), Leave Travel Allowance (LTA), and the Standard Deduction.

In this blog, we’ll explore how these three components can help you save taxes efficiently, especially if you are a salaried employee. We’ll also touch upon recent updates applicable for FY 2024–25.

1. House Rent Allowance (HRA): The Big Saver

What is HRA?

HRA is a component of your salary offered by employers to help meet your rental expenses. It can be partially or fully exempt from tax under Section 10(13A) of the Income Tax Act.

Conditions to Claim HRA

You must live in a rented house.
You must pay rent and be able to furnish rent receipts.
You must not own a house in the same city where you are employed.

How is HRA Exemption Calculated?

The least of the following is exempt from tax:

Actual HRA received
50% of salary if living in a metro city (40% for non-metros)
Rent paid minus 10% of salary (Basic + DA)

Example:

Basic Salary: ₹40,000/month
Rent Paid: ₹15,000/month
HRA Received: ₹20,000/month
Metro City: Yes (e.g., Mumbai)

Then, the exemption is calculated as:

50% of ₹40,000 = ₹20,000
Rent paid – 10% of salary = ₹15,000 – ₹4,000 = ₹11,000
Actual HRA received = ₹20,000

So, HRA exemption = ₹11,000 (lowest among the three)

Documents Required

Rent receipts
Rental agreement
PAN of landlord (if annual rent exceeds ₹1,00,000)

2. Leave Travel Allowance (LTA): Often Ignored, Great for Holidays

What is LTA?

LTA is the amount paid by your employer to cover domestic travel expenses when you take leave. Under Section 10(5), this amount can be claimed as tax-exempt twice in a block of four years.

The current block: 2022–2025

Key Rules to Claim LTA

Travel must be within India.
Only travel costs (rail/air/bus) are allowed. No hotel, food, or local sightseeing.
You must provide proof of travel (tickets, boarding passes).

Who Can You Claim LTA For?

You can claim LTA for:

Yourself
Spouse
Children (maximum 2)
Dependent parents and siblings

Example:

You travel from Mumbai to Delhi with your spouse and two kids, and spend ₹30,000 on airfare. If your employer provides LTA of ₹30,000 in your CTC, you can claim the entire amount as tax-exempt (if documents are in order).

3. Standard Deduction: Auto Benefit for Salaried Individuals

What is the Standard Deduction?

Introduced in FY 2018–19, this deduction replaces transport and medical reimbursement. It’s a flat deduction of ₹50,000 allowed to every salaried taxpayer and pensioner, without needing to submit any bills.

Update (Budget 2025):
The standard deduction of ₹50,000 continues to be available under both the old and new tax regimes for FY 2024–25.

Why It Matters

Even if you don’t claim any other exemptions or deductions, you still get this automatic benefit. It helps reduce your gross salary for tax purposes.

HRA, LTA & Standard Deduction Under Old vs New Regime

Component	Old Regime	New Regime (FY 2025 onwards)
HRA Exemption	Available	Not Available
LTA Exemption	Available	Not Available
Standard Deduction	Available	Available (₹50,000)
Chapter VI-A Deductions (80C etc.)	Yes	No

Tip: If you live in rented accommodation and travel domestically, the old regime is often better.

Which Regime Should You Choose?

Choose the Old Regime if:
You claim HRA, LTA, 80C deductions (like PPF, LIC), or housing loan interest.
Choose the New Regime if:
You don’t have major deductions and prefer a lower tax rate with no paperwork.

You can switch between regimes every financial year, giving you the flexibility to plan better.

Pro Tip from a CA in Mumbai

To maximize your tax savings, it’s best to calculate tax liability under both regimes and choose the one with the least payable amount. Tools like the Income Tax Calculator on the Income Tax e-Filing Portal can help.

At Makwana Sweta & Associates, a leading provider of CA services in Mumbai, we help clients nationwide understand their salary structure, optimize exemptions, and file accurate returns.

Conclusion

By smartly using HRA, LTA, and the Standard Deduction, salaried employees can substantially reduce their taxable income. With careful planning and documentation, you not only save tax but also create opportunities for better financial management.

Need assistance with tax planning or income tax filing? Contact Makwana Sweta & Associates — your trusted Chartered Accountant in Mumbai and beyond.

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Understand which Tax Regime suits your needs and helps you save the most tax, read the blog written by CA Sweta Makwana