How HRA exemption is calculated
House Rent Allowance (HRA) is a component of your salary meant to cover rental expenses. Under the old tax regime, a portion of HRA is exempt from income tax. The exempt amount is the lowest of the following three values — this is the least-of-three rule mandated by Section 10(13A) of the Income Tax Act.
The three values
- Value 1 — Actual HRA received: The annual HRA amount your employer pays you, as stated in your salary slip.
- Value 2 — 50% or 40% of basic salary: 50% if you live in a metro city (Mumbai, Delhi, Kolkata, Chennai), 40% if you live anywhere else.
- Value 3 — Rent paid minus 10% of basic salary: The actual rent you pay each year minus 10% of your basic annual salary. If you pay less rent than 10% of basic, this value becomes zero or negative — meaning no exemption from this component.
The lowest of these three is your HRA exemption — the amount that will not be taxed. The remaining HRA (if any) becomes part of your taxable income.
Worked example
| Detail | Annual amount |
|---|---|
| Basic salary | ₹6,00,000 |
| HRA received | ₹2,40,000 |
| Rent paid | ₹3,00,000 |
| City type | Metro |
| Value | Calculation | Amount |
|---|---|---|
| 1 — Actual HRA received | As received | ₹2,40,000 |
| 2 — 50% of basic (metro) | 50% × ₹6,00,000 | ₹3,00,000 |
| 3 — Rent − 10% of basic | ₹3,00,000 − ₹60,000 | ₹2,40,000 |
| HRA exemption (lowest) | ₹2,40,000 | |
In this example both Value 1 and Value 3 equal ₹2,40,000, which is the lowest. The entire HRA received is exempt. Had HRA received been ₹3,00,000 instead, only ₹2,40,000 would be exempt and the remaining ₹60,000 would be taxable.
Metro vs non-metro cities
Only four cities are classified as "metro" for HRA purposes under the Income Tax Act: Mumbai, Delhi, Kolkata, and Chennai. All other cities — including Bengaluru, Hyderabad, Pune, Ahmedabad, and all tier-2 cities — are treated as non-metro, where the cap is 40% of basic instead of 50%.
This classification has not changed in decades and does not reflect modern city costs. Bengaluru and Hyderabad residents pay some of India's highest rents but are still subject to the 40% cap. This is a known anomaly in the tax rules.
Important conditions for claiming HRA
- You must actually be living in a rented house. You cannot claim HRA if you live in your own property.
- You must be paying rent to a landlord. Rent paid to a spouse is generally not accepted.
- If annual rent exceeds ₹1,00,000 (₹8,333/month), you must provide your landlord's PAN to your employer. Without it, your employer may not allow the exemption in TDS.
- HRA exemption is only available under the old tax regime. Under the new tax regime, HRA is fully taxable. If you pay significant rent, compare both regimes carefully — use our salary calculator to see the difference.
- You can claim HRA exemption at the time of ITR filing even if your employer did not account for it in TDS, provided you have rent receipts and (if applicable) landlord PAN.
Frequently asked questions
How is HRA exemption calculated?
Which cities are considered metro for HRA?
Is HRA available under the new tax regime?
Can I claim HRA if I live in a rented house but own property elsewhere?
What if my rent is higher than my HRA?
Do I need rent receipts to claim HRA?
Disclaimer: This calculator is for general informational and educational purposes only and does not constitute tax, legal, or financial advice. Tax rules are subject to change. Please consult a qualified chartered accountant before making financial decisions.