How HRA exemption works in India

Updated June 2026 · FY 2026-27 (AY 2027-28)

If you are a salaried employee living in a rented house and filing under the old tax regime, House Rent Allowance (HRA) is one of the most valuable tax exemptions available to you. Understanding it properly can save you tens of thousands of rupees every year.

What is HRA?

HRA (House Rent Allowance) is a salary component your employer pays to help cover your rental expenses. It is typically 40–50% of your basic salary. The key thing to know: the full HRA you receive is not automatically tax-free. Only the exempt portion escapes tax, and that is calculated using the least-of-three rule.

HRA exemption is only available under the old tax regime. Under the new regime, your full HRA is taxable. If you pay significant rent, factor this in when choosing your regime.

The least-of-three rule (Section 10(13A))

The HRA exemption equals the lowest of these three amounts:

Value 1: Actual HRA received from employer
Value 2: 50% of basic salary (if you live in Mumbai, Delhi, Kolkata, or Chennai) or 40% (all other cities)
Value 3: Actual annual rent paid minus 10% of annual basic salary

Any HRA you receive above the exempt amount becomes part of your taxable salary.

Step-by-step example

Assume: Monthly basic salary ₹50,000 (annual ₹6,00,000), monthly HRA received ₹20,000 (annual ₹2,40,000), monthly rent paid ₹25,000 (annual ₹3,00,000), city: Bengaluru (non-metro).

Value	Calculation	Amount
1 — Actual HRA received	As received	₹2,40,000
2 — 40% of basic (non-metro)	40% × ₹6,00,000	₹2,40,000
3 — Rent − 10% of basic	₹3,00,000 − ₹60,000	₹2,40,000
HRA exemption (lowest)		₹2,40,000

In this case all three values happen to be equal, so the full HRA received is exempt. Now suppose HRA received was ₹3,00,000 — the exemption is still ₹2,40,000 and the extra ₹60,000 becomes taxable salary.

Metro vs non-metro: the four cities that matter

The Income Tax Act classifies only Mumbai, Delhi, Kolkata, and Chennai as metro cities for HRA purposes. Employees in these cities get Value 2 calculated at 50% of basic. Every other city — including Bengaluru, Hyderabad, Pune, Ahmedabad, and Chandigarh — is non-metro, giving only 40% of basic for Value 2.

This classification has not been updated since the original Act and does not reflect modern rental markets. Bengaluru IT workers paying ₹40,000/month in rent are capped at 40% of basic, despite paying metro-level rents — this is simply the law as it stands.

Key conditions for claiming HRA

You must be living in a rented property. No exemption if you live in your own home.
Rent paid to a spouse is generally rejected by tax authorities.
If annual rent exceeds ₹1,00,000, you must provide your landlord's PAN to your employer.
Keep rent receipts for all months you claim. For scrutiny, these should be available for up to 6 years.
You can claim HRA and home-loan deduction (Section 24b) simultaneously if your rented residence and owned property are in different cities.

Use the HRA exemption calculator to find your exempt amount instantly. Then plug it into our salary calculator to see how much it reduces your tax.

Frequently asked questions

Can I claim HRA if I own a house in another city?

Yes. HRA exemption applies to the house you are renting as your current residence. If you own a property in another city but rent in the city you work in, you can still claim HRA for the rented accommodation. You can simultaneously claim home-loan interest under Section 24(b) for the owned property.

What if my rent is higher than my HRA?

If you pay more rent than the HRA you receive, the excess rent does not give you additional deductions beyond the HRA exemption calculation. However, paying higher rent increases Value 3 (rent − 10% of basic), which may increase your exemption if Value 3 was the limiting factor. The key constraint is usually the actual HRA received (Value 1).

Do I need landlord PAN for HRA?

Only if annual rent exceeds ₹1,00,000 (₹8,333/month). Below this threshold, no PAN is required. Above it, your employer requires the landlord's PAN to allow the HRA deduction in TDS. If the landlord refuses to share PAN, you may need to submit a declaration and sort it out at ITR filing time.

Can I claim HRA under the new tax regime?

No. HRA exemption is entirely unavailable under the new tax regime. Your full HRA received is added to taxable income. This is one of the main reasons significant rent-payers should calculate both regimes carefully — the HRA exemption can make the old regime more attractive despite its higher slab rates.

Disclaimer: This guide is for general informational purposes only. Tax laws are subject to change and individual circumstances vary. Consult a qualified CA before making tax decisions.