House Rent Allowance (HRA) is one of the biggest tax savers for salaried people who rent – but only part of it is tax-free, and only under the old tax regime. Enter your monthly salary, HRA and rent to see exactly how much is exempt.
The HRA exemption formula
The exempt amount is the lowest of these three:
- Actual HRA received from your employer
- Rent paid minus 10% of salary (basic + DA)
- 50% of salary if you live in a metro city, or 40% elsewhere
Whatever HRA is left after the exemption is added to your taxable salary.
Which cities count as metro?
Under the Income-tax Rules 2026, the 50% limit applies to Delhi, Mumbai, Kolkata, Chennai, Bengaluru, Hyderabad, Pune and Ahmedabad. Earlier, only the first four qualified. All other cities use 40%.
Worked example
Basic + DA ₹50,000/month, HRA ₹20,000/month, rent ₹18,000/month, living in Bengaluru:
- Actual HRA: ₹2,40,000 a year
- Rent − 10% of salary: ₹2,16,000 − ₹60,000 = ₹1,56,000
- 50% of salary: ₹3,00,000
The lowest is ₹1,56,000, so that much is tax-free and ₹84,000 is taxable. Paying more rent (or having a lower basic) would raise the exemption.
Rules to remember
- Old regime only – HRA is fully taxable under the new regime.
- Landlord PAN – needed if rent is more than ₹1 lakh a year.
- Rent receipts or agreement – keep them; your employer may ask for proof.
- Paying rent to parents is allowed if they own the house and declare the rent as income. Rent to your spouse is generally not accepted.
- If you own a house in the same city and still rent, the claim can be questioned – keep a valid reason documented.
How rent affects your exemption
For someone with ₹50,000 basic + DA and ₹20,000 HRA per month in a metro city:
| Monthly rent | Exempt HRA / year | Taxable HRA / year |
|---|---|---|
| ₹8,000 | ₹36,000 | ₹2,04,000 |
| ₹12,000 | ₹84,000 | ₹1,56,000 |
| ₹18,000 | ₹1,56,000 | ₹84,000 |
| ₹25,000 | ₹2,40,000 | ₹0 |
Once rent minus 10% of salary is more than the HRA you receive, the entire HRA becomes tax-free. Paying more rent beyond that point gives no further tax benefit.
Step-by-step: calculating HRA exemption yourself
- Add up basic pay and dearness allowance for the months you paid rent – this is “salary” for HRA purposes.
- Work out the three amounts: actual HRA, rent paid minus 10% of salary, and 50% or 40% of salary.
- The smallest figure is your exempt HRA.
- If you moved cities or your salary changed mid-year, calculate each period separately and add them up.
Documents to keep
- Rent receipts for each month (or quarter) with the landlord’s name, address, amount and signature.
- Rental agreement – not always mandatory, but strongly recommended.
- Landlord’s PAN if annual rent exceeds ₹1 lakh, or a declaration if they don’t have one.
- Bank transfer records – paying rent by bank transfer is the best evidence if your claim is ever questioned.
Common HRA mistakes
- Using CTC instead of basic + DA. Allowances and bonuses don’t count as salary in the formula.
- Claiming HRA in the new regime. It isn’t allowed – if HRA is your main tax saver, compare regimes first.
- Fake rent receipts. The tax department matches landlord PANs with their returns. Mismatches can lead to notices and penalties.
- Forgetting to submit proofs to your employer. You can still claim the exemption when filing your return, but your employer will have deducted extra TDS during the year.
Real-life scenarios
- Pune tenant: Basic ₹60,000, HRA ₹24,000 and rent ₹22,000 a month. Pune now uses the 50% limit, so the exemption is ₹1,92,000 a year (rent minus 10% of salary).
- Jaipur tenant: Basic ₹40,000, HRA ₹16,000, rent ₹15,000. The 40% limit applies; the exemption is ₹1,32,000.
- Low rent: Basic ₹80,000, HRA ₹32,000, rent ₹9,000. Rent minus 10% of salary is just ₹12,000 a year – almost all HRA is taxable.
Related calculators
- New vs old regime calculator – is the old regime worth it?
- CTC to in-hand salary – monthly take-home
- Gratuity calculator – another salary benefit
FAQs
Can both husband and wife claim HRA for the same house?
Yes, if both pay a share of the rent and have rent receipts for their own share. Each person’s exemption is calculated on their own salary and the rent they actually paid.
Can I claim HRA and home-loan interest together?
Yes, in certain cases – for example if you own a house in one city but rent in another city where you work. Keep documents showing why you live in a rented home.
I don’t get HRA from my employer. Can I still claim rent?
Self-employed people and employees without HRA can claim a deduction for rent under a separate provision (formerly section 80GG), subject to lower limits, in the old regime.
Does HRA exemption help in the new regime?
No. If your HRA exemption is your main deduction, compare both regimes with our new vs old regime calculator before choosing.