How is HRA exemption calculated?
Updated · Sources linked below
The formula
Under the old tax regime, part of your house rent allowance is tax-free. Work out these three amounts for the year (or each month) and the lowest one is exempt; the rest of your HRA is taxed as salary.
| Amount | |
|---|---|
| 1 | HRA actually received from your employer |
| 2 | Rent paid minus 10% of salary |
| 3 | 50% of salary if you live in a metro city, 40% elsewhere |
"Salary" here means basic pay plus dearness allowance (if it counts for retirement benefits), plus any commission fixed as a share of turnover. It doesn't include HRA or other allowances.
Which cities get 50%?
| Financial year | Cities at 50% | Everywhere else |
|---|---|---|
| 2025-26 (till 31 March 2026) | Delhi, Mumbai, Kolkata, Chennai | 40% |
| 2026-27 onwards (from 1 April 2026) | Delhi, Mumbai, Kolkata, Chennai, Bengaluru, Hyderabad, Pune, Ahmedabad | 40% |
The four new cities were added by the Income-tax Rules, 2026, which came in with the new Income-tax Act from 1 April 2026. Check with your employer how they apply it for the year you're claiming.
Worked example
Priya lives in Pune in FY 2026-27. Her basic pay is ₹50,000 a month, her HRA is ₹20,000 a month, and she pays ₹22,000 a month in rent.
| Step | Monthly | Yearly |
|---|---|---|
| 1. HRA received | ₹20,000 | ₹2,40,000 |
| 2. Rent − 10% of salary (₹22,000 − ₹5,000) | ₹17,000 | ₹2,04,000 |
| 3. 50% of salary (Pune, from FY 2026-27) | ₹25,000 | ₹3,00,000 |
| Exempt HRA (lowest) | ₹17,000 | ₹2,04,000 |
| Taxable HRA (₹20,000 − ₹17,000) | ₹3,000 | ₹36,000 |
Paying more rent raises amount 2; once rent is ₹25,000 a month, amount 2 equals her HRA and the whole HRA becomes exempt.
What you need to claim it
- You must be under the old tax regime: the new regime has no HRA exemption.
- Rent receipts signed by your landlord, and the landlord's PAN if rent is over ₹1 lakh a year.
- You must actually live in the rented home and pay the rent. You can't claim HRA on a house you own and live in.
Questions people also ask
Is HRA exempt under the new tax regime?
No. The HRA exemption is available only under the old tax regime; under the new regime the whole HRA is taxable.
What if I don't pay rent?
Then amount 2 is zero or negative, so none of your HRA is exempt and all of it is taxed as salary.
Is Bengaluru a metro city for HRA?
From FY 2026-27 (1 April 2026) Bengaluru, Hyderabad, Pune and Ahmedabad get the 50% limit; for earlier years they were at 40%.
Can I claim HRA if my employer doesn't give it?
Not as HRA. Salaried people without HRA in their pay, and self-employed people, may have a separate rent deduction under the old regime.
Official sources
- Income Tax Department — Income-tax Rules, 2026 guidance
- Income Tax Department — New vs old tax regime FAQs
- Income Tax Department — CBDT Circular No. 08/2013
This guide explains the rules in plain words; it isn't legal or tax advice. Rules change, so check the sources or ask a Chartered Accountant for your situation.
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