HRA exemption calculation: salary, rent and metro-city examples

House rent allowance (HRA) is a part of salary paid to meet rent. It is fully taxable unless you claim the exemption under Section 10(13A) of the 1961 Act – now covered by the salary schedule and Rules under the Income-tax Act, 2025. The exemption is available only in the old regime.

The formula: least of three

The exempt HRA is the lowest of:

1. Actual HRA received;
2. Rent paid minus 10% of salary;
3. 50% of salary if you live in a metro city, otherwise 40%.

The balance HRA is taxable. "Salary" for this purpose is basic + DA (forming part of retirement benefits) + turnover-based commission, for the months you lived in rented accommodation.

Which cities get 50%

Noida, Gurugram, Ghaziabad and Faridabad are separate cities from Delhi for this purpose and get 40%. If you live in Gurugram but work in Delhi, the city of residence (Gurugram) decides.

Example 1: Delhi employee

Example: Anjali lives in a rented flat in Rohini. Annual basic salary ₹7,20,000, DA nil, HRA received ₹2,88,000, rent paid ₹2,40,000 (₹20,000 a month).

Raising rent by ₹5,000 a month (₹60,000 a year) would increase her exemption to ₹2,28,000 – but only if real rent is paid. HRA is a reimbursement of actual rent, not a free deduction.

Example 2: Pune employee – the 2026 change

Example: Rohit in Pune has basic salary ₹6,00,000, HRA ₹3,00,000 and pays rent of ₹3,60,000.

The wider city list adds ₹60,000 to Rohit's exemption from Tax Year 2026-27 if he stays in the old regime. Use the HRA calculator to test your figures.

Example 3: rent paid for part of the year

If you lived in a rented house for only eight months, compute all three limbs for those eight months – salary, HRA and rent for that period only. HRA for the other four months is fully taxable.

Documentation

• Rent receipts for each month, or a rent agreement and bank transfer records.
• Landlord's PAN where rent exceeds ₹1 lakh in the year. If the landlord has no PAN, a declaration with name and address is required.
• Form 124 (Form 12BB for FY 2025-26) declaration to the employer with landlord details.
• If rent exceeds ₹50,000 a month and you are not covered by tax audit, you must deduct 2% TDS on rent and file Form 141 – see TDS on rent.

Rent to parents

Paying rent to a parent who owns the house is allowed if genuine. Pay by bank transfer, sign a simple rental agreement and make sure the parent reports the rent as house property income. The parent can claim 30% standard deduction on it. Courts and tribunals have accepted such claims where documentation is in order; sham arrangements are disallowed.

HRA and home loan together

• You can claim both if you live on rent in one city and own a house in another city.
• If you own a house in the same city but live on rent, the department may question it; you should have a reason (e.g. the owned house is let out, too small or far from work).
• The owned house, if let out, is taxed on rent received, with interest deduction.

Section 80GG – rent without HRA

Where no HRA is received (for example, self-employed persons), Section 80GG (Section 134 of the 2025 Act) allows a deduction of the least of: ₹5,000 a month; 25% of adjusted total income; or rent paid minus 10% of adjusted total income – old regime only, and not if you or your family own a house in the city of residence.

Common mistakes

• Claiming HRA in the new regime.
• Treating Gurugram or Noida as Delhi for the 50% limb.
• Fake rent receipts – the AIS now captures rent with TDS and landlords' returns, so mismatches are visible.
• Not deducting TDS where rent exceeds ₹50,000 a month.

Key takeaway

HRA exemption is the least of actual HRA, rent minus 10% of salary and 50%/40% of salary. The 2026 Rules add four more 50% cities, which can help employees in Bengaluru, Hyderabad, Pune and Ahmedabad who stay in the old regime. For a full regime comparison, use our income tax calculator or ask our tax planning team.