How is HRA exemption calculated in India?

The HRA exemption under Section 10(13A) is the minimum (lowest) of three amounts: (1) Actual HRA received from employer, (2) 50% of basic salary if you live in a metro city (Delhi, Mumbai, Kolkata, Chennai), or 40% if in a non-metro city, (3) Actual rent paid minus 10% of basic salary. All three calculations are done on a monthly basis and then annualised. If any of the three is zero or negative, the HRA exemption is nil for that month.

Which cities are considered metro for HRA purposes?

For HRA exemption calculation under Section 10(13A), the four metro cities are Delhi (includes Noida, Gurgaon as part of NCR if accommodation is there), Mumbai (includes the Mumbai Metropolitan Region), Kolkata, and Chennai. All other cities - including Bengaluru, Hyderabad, Pune, Ahmedabad, Jaipur, and any other city not specifically listed - are treated as non-metro, and the applicable percentage of basic salary is 40% (not 50%).

Can I claim HRA exemption without rent receipts?

For annual rent exceeding ₹1 lakh (₹8,333/month), you must furnish the landlord's PAN number to your employer at the time of investment declaration. For rent below ₹1 lakh annually, PAN is not mandatory but rent receipts are advisable as documentary support. Your employer may ask for rent receipts as part of their internal HRA proof verification. If selected for ITR scrutiny, you should have rent receipts, rent agreement, and bank transfer records to prove actual rent payment.

Is HRA exemption available under the new tax regime?

No. The HRA exemption under Section 10(13A) is not available under the new tax regime (Section 115BAC as applicable from FY 2020-21 onwards and made the default regime from FY 2023-24). HRA exemption is available only if you opt for the old tax regime when filing your ITR. This is one of the key reasons many high-rent payers (especially in metros) continue to choose the old regime.

Can I claim HRA if I live with my parents and have no rent agreement?

Yes, you can claim HRA by paying rent to your parents, provided: the rent is paid through proper banking channels (not cash for high amounts), you have a valid rent agreement with your parents, your parents report this rental income in their own ITR, and your parents legally own the property. You cannot pay rent to a spouse. Paying rent to parents is a legitimate tax planning strategy as parents (often senior citizens with lower income) may be in a lower tax bracket, resulting in overall family tax savings.

HRA Exemption Complete Guide India 2026 - How to Calculate HRA Tax Exemption

Written by Nalini Krishnamurthy | Updated: April 2026 | 11 min read

House Rent Allowance (HRA) is one of the most valuable salary components for tax planning in India. When you live in a rented house, a portion of your HRA is exempt from income tax under Section 10(13A). The calculation involves three conditions and the lowest of the three is exempt. This guide explains the formula step-by-step, with worked examples for Mumbai and Bengaluru employees, and clarifies what applies under the new vs old tax regime.

The HRA Exemption Formula: Minimum of 3 Conditions

Under Section 10(13A) of the Income Tax Act, the HRA exemption is the minimum (lowest) of the following three amounts computed on a monthly basis:

Condition 1: Actual HRA received from the employer in that month
Condition 2: 50% of basic salary (if accommodation is in Delhi, Mumbai, Kolkata, or Chennai) OR 40% of basic salary (all other cities)
Condition 3: Actual rent paid minus 10% of basic salary (for that month)

The term "basic salary" here means basic salary + Dearness Allowance (DA forming part of salary for retirement benefit purposes). Other allowances are excluded.

If you do not pay any rent, or Condition 3 is zero or negative (rent paid is less than 10% of basic), the HRA exemption is zero and the full HRA is taxable.

Worked Example 1: Mumbai Employee

Suppose an employee in Mumbai has the following monthly salary structure:

Basic salary: ₹60,000/month
HRA received: ₹24,000/month
Actual rent paid: ₹20,000/month
Mumbai is a metro city: 50% rule applies

Condition	Calculation	Monthly Amount
1. Actual HRA	-	₹24,000
2. 50% of basic (metro)	50% × ₹60,000	₹30,000
3. Rent minus 10% of basic	₹20,000 − (10% × ₹60,000)	₹14,000
HRA Exempt (minimum)	Minimum of ₹24K, ₹30K, ₹14K	₹14,000/month

Annual HRA exempt = ₹14,000 × 12 = ₹1,68,000. Taxable HRA = ₹24,000 − ₹14,000 = ₹10,000/month, or ₹1,20,000 annually. This employee should consider paying higher rent to increase the Condition 3 amount and thus increase the exemption.

If the rent were increased to ₹24,000/month: Condition 3 = ₹24,000 − ₹6,000 = ₹18,000. New exempt = ₹18,000/month (still limited by min). Taxable HRA = ₹6,000/month.

Worked Example 2: Bengaluru Employee (Non-Metro)

An employee in Bengaluru (non-metro) with:

Basic salary: ₹50,000/month
HRA received: ₹20,000/month
Actual rent paid: ₹18,000/month

Condition	Calculation	Monthly Amount
1. Actual HRA	-	₹20,000
2. 40% of basic (non-metro)	40% × ₹50,000	₹20,000
3. Rent minus 10% of basic	₹18,000 − ₹5,000	₹13,000
HRA Exempt (minimum)	Minimum of ₹20K, ₹20K, ₹13K	₹13,000/month

Annual HRA exempt = ₹1,56,000. Taxable HRA = ₹84,000 annually.

HRA and the Old vs New Tax Regime

The HRA exemption is not available under the new tax regime (the default regime from FY 2023-24). To claim HRA exemption:

You must opt for the Old Tax Regime explicitly when filing your ITR (or via your employer's tax declaration).
The decision to switch to the old regime is ideally made at the start of the year (via investment declaration form to employer) to ensure correct TDS.
You can switch between regimes each year when filing ITR (for salaried individuals), but TDS through the year will be deducted based on the regime you declared to your employer.

For employees in high-rent metro cities (Mumbai, Delhi) with substantial HRA, the old regime is often more tax-efficient despite the lower base tax slabs of the new regime. Compute your tax under both regimes before choosing.

Documentation Required for HRA Claim

Rent receipts: Monthly rent receipts signed by the landlord, showing amount, period, and address.
Rent agreement: A valid lease or rent agreement between you and the landlord.
Landlord's PAN: Mandatory if annual rent exceeds ₹1,00,000 (you must provide PAN to employer).
Bank transfer records: Preferred over cash payments; receipts for cash payment must be kept carefully.

Related Resources

Disclaimer: This guide is for educational purposes. HRA exemption calculations are based on Section 10(13A) and Rule 2A of the Income Tax Rules as applicable in FY 2025-26. The new tax regime does not permit HRA exemption. Consult a tax advisor for personalised advice on choosing between the old and new tax regimes.

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