A salaried person who is in receipt of HRA from his/ her employer can save tax by claiming exemption of rent paid by him/ her.

People usually finds it difficult to understand. I will try to make it more clear

HRA is always calculated on monthly basis. It means if you are not paying rent for a specific month, you cannot claim exemption for HRA amount of that month.

As per Sec 10(13A) of Income Tax Act and Rule 2A of Income Tax Rules:

Least of the following there are exempted amount:

1. 50%  or 40% of Basic Salary + DA (if forming part of salary for the purpose of calculation of retirement benefits) + Commission (only if fixed percentage on turnover basis)
2. HRA received.
3. Rent paid minus 10% of Salary

50% is applicable when the rent house in in Delhi, Madras, Calcutta and Bombay. In other cases, 40% is applicable.

Now, let us come understand with the help of example.
To make it easy to understand, I am not considering DA and commission as these are based on conditions which may differ person to person.

Consider the following amount:

Basic Salary = INR 1,000 per month
HRA Received = INR 600 per month
Rent Paid = INR 200 per month
Rent house is in Delhi. Therefore percentage applicable is 50%.

Now exempted amount is calculated:

1.  50% of INR 1,000 = INR 500
2.  HRA Received = INR 600
3. INR 200 – 10% of INR 1,000 = INR 100

Least of the above three is INR 100. Therefore, INR 100 is exempted HRA amount.

 Therefore, taxable HRA = HRA received minus Exempted HRA
                                         = INR 600 – INR 100
                                         = INR 500

Please note that above mentioned amounts are per month. You need to do this calculation for all 12 months. Usually, these amounts are consistent throughout the year. Therefore, in that case you can multiply this amount with 12 to arrive at annual figure.