HRA Exemption - How to Calculate Your House Rent Allowance Tax Benefit
How to calculate HRA exemption under Section 10(13A): the three-way least-of formula, metro vs non-metro, documents you need, and claiming HRA with a home loan.
Educational content only. This article is for learning purposes and does not constitute personalised financial, tax, or investment advice. Investments are subject to market risks. For decisions specific to your situation, consult a SEBI-registered investment adviser. Read our editorial standards.
HRA Exemption: How to Actually Calculate What You Can Claim
You pay rent. Your salary slip shows an HRA component. So how much of it is tax-free?
Most people guess. They either claim the full HRA and get a notice later, or they under-claim and leave money on the table. The real answer is a three-way calculation, and you take the smallest of the three. Here's how it actually works.
The First Thing That Trips People Up
HRA exemption is gone under the new tax regime.
If you've opted for the new regime (the default since FY 2023-24), you cannot claim HRA. So the whole calculation below only matters if you're on the old regime. Before you do any of this maths, check which regime you're on. We cover that choice in detail in the income tax FY 2026-27 guide.
So who should keep reading? Anyone on the old regime who pays rent. That's still a large number of salaried people, especially those with home loans or heavy 80C investments.
The Three-Way Calculation
Your HRA exemption is the least of these three amounts:
- Actual HRA received from your employer
- 50% of basic salary if you live in a metro (Delhi, Mumbai, Kolkata, Chennai), or 40% if non-metro
- Rent paid minus 10% of basic salary
"Basic salary" here means basic pay plus dearness allowance (DA), if your DA forms part of retirement benefits. For most private-sector employees, it's just basic pay.
Source: Income Tax Act Section 10(13A) read with Rule 2A of the Income Tax Rules.
A Real Example
Let's run actual numbers, because the formula only clicks when you see it.
Her details:
- Basic salary: ₹50,000/month = ₹6,00,000/year
- HRA received: ₹20,000/month = ₹2,40,000/year
- Rent paid: ₹18,000/month = ₹2,16,000/year
- City: Bengaluru, treated as non-metro for HRA (so 40%)
The three amounts:
- Actual HRA received: ₹2,40,000
- 40% of basic: 40% × ₹6,00,000 = ₹2,40,000
- Rent paid minus 10% of basic: ₹2,16,000 − ₹60,000 = ₹1,56,000
The exemption is the least of the three: ₹1,56,000.
So of her ₹2,40,000 HRA, ₹1,56,000 is tax-free and ₹84,000 is taxable. If she's in the 30% slab, that exempt portion saves her about ₹46,800 in tax for the year.
Notice what drove the answer. It wasn't her HRA or the 40% cap. It was the rent she actually pays. That third condition is usually the binding one, which is why the amount of rent you pay matters so much.
Why the Metro Definition Surprises People
Here's a quirk. For HRA, only four cities count as metros: Delhi, Mumbai, Kolkata, and Chennai. That's it.
Bengaluru? Non-metro. Hyderabad? Non-metro. Pune, Gurgaon, Noida? All non-metro for HRA purposes, even though rents there rival the actual metros. So if you live in Bengaluru paying Mumbai-level rent, you're capped at 40% of basic, not 50%. It feels unfair, but that's the rule as written.
Documents You Need to Keep
Claiming HRA isn't just ticking a box. If your rent crosses certain thresholds, you need proof.
- Rent receipts: keep them for the full year. Your employer will ask for them at investment-proof time.
- Rent agreement: a registered or notarised agreement strengthens your claim.
- Landlord's PAN: mandatory if your annual rent is more than ₹1,00,000 (that's just ₹8,334/month). No PAN means your claim can be disallowed.
- Bank transfer proof: pay rent by bank transfer, not cash. A digital trail protects you in a scrutiny.
A common mistake: paying rent to a parent. It's allowed, but the parent must actually own the home and must declare that rent as income in their return. Paste-and-forget arrangements get caught.
Can You Claim HRA and a Home Loan Together?
Yes, and it's legitimate in the right situations.
Say you own a house in your home town (with a home loan running) but work in another city where you rent. You can claim HRA for the rent you pay and the home loan deductions (Section 24 interest, Section 80C principal) for the house you own. The two aren't mutually exclusive.
But if you rent and own in the same city, and there's no genuine reason you can't live in your own house, the assessing officer can question it. Keep the facts honest.
| Situation | HRA? | Home loan benefit? |
|---|---|---|
| Rent in city A, own house (loan) in city B | Yes | Yes |
| Rent and own in same city, valid reason | Yes, if genuine | Yes |
| Rent and own same house | No | Yes |
| Live in own house, no rent | No | Yes |
What If Your Employer Doesn't Pay HRA?
You can still get relief. If you're salaried with no HRA component, or self-employed, Section 80GG lets you claim a deduction for rent paid. The cap is the least of ₹5,000/month, 25% of total income, or rent minus 10% of income. It's smaller than HRA, but it's something. You file Form 10BA to claim it.
Key Takeaways
- HRA exemption applies only under the old tax regime; the new regime has none
- Exemption is the least of: actual HRA, 50% (metro) or 40% (non-metro) of basic, and rent minus 10% of basic
- Only Delhi, Mumbai, Kolkata, Chennai count as metros; Bengaluru, Hyderabad, Pune are non-metro for HRA
- The "rent minus 10% of basic" condition is usually the one that decides your number
- Landlord's PAN is mandatory once annual rent crosses ₹1,00,000
- You can claim HRA and home loan benefits together if the facts are genuine
- No HRA from your employer? Section 80GG offers a smaller rent deduction
Basic salary ₹6,00,000/year, HRA received ₹2,40,000, rent paid ₹2,16,000, non-metro city. What is the HRA exemption?
Work out your full tax under both regimes with the Income Tax Calculator, and once you know HRA is worth keeping, plan the rest of your 80C deductions with the Section 80C guide. If you're still deciding which regime fits you, start with the income tax FY 2026-27 guide.
Sources
- Income Tax Act, 1961, Section 10(13A) and Rule 2A. HRA exemption conditions and the three-way least-of calculation. incometaxindia.gov.in
- Income Tax Act, Section 80GG and Form 10BA. Rent deduction when no HRA is received. incometaxindia.gov.in
- CBDT Circular on landlord PAN requirement. PAN mandatory where annual rent exceeds ₹1,00,000. incometaxindia.gov.in
Frequently asked questions
How is HRA exemption calculated?
HRA exemption is the least of three amounts: the actual HRA received, 50% of basic salary (metro) or 40% (non-metro), and rent paid minus 10% of basic salary. You take the smallest of these three. The "rent minus 10% of basic" condition is usually the one that decides your number.
Can I claim HRA under the new tax regime?
No. HRA exemption under Section 10(13A) is available only under the old tax regime. If you have opted for the new regime, you cannot claim any HRA exemption, which is one reason rent-paying employees with large deductions often stay on the old regime.
Which cities count as metro for HRA?
Only Delhi, Mumbai, Kolkata, and Chennai are metros for HRA, qualifying for the 50% of basic limit. All other cities, including Bengaluru, Hyderabad, Pune, Gurgaon, and Noida, are non-metro and capped at 40% of basic, regardless of how high rents are there.
Do I need my landlord PAN to claim HRA?
Yes, if your annual rent exceeds Rs 1,00,000 (about Rs 8,334 per month), you must report your landlord PAN. Without it, the exemption can be disallowed. Keep rent receipts, a rent agreement, and pay by bank transfer to maintain a clean trail.
Try Our Free Tools
Put what you’ve learned into action with our calculators and courses.
Continue Learning
This guide is part of our Tax Saving course. Start with the related chapter:
HRA, Home Loan, and Standard DeductionThe Finance Signal
One email a week: a calculator tip, a concept explained, and the guide of the week. No spam, unsubscribe anytime.