Disclaimer: This guide is for general informational and educational purposes only. It does not constitute financial, tax, or legal advice. Please consult a qualified chartered accountant for your specific tax situations.
HRA Exemption: How It's Calculated & How to Claim It (FY 2025-26)
Direct Answer: HRA exemption is the lowest of three amounts: (a) actual HRA received, (b) 50% of basic salary if in a metro city (40% for non-metro), or (c) actual rent paid minus 10% of basic salary. Only the exempt portion reduces your taxable income — the rest is taxable. The calculator below computes your exact exempt HRA from your salary and rent details.
Check your HRA numbers: Plug your salary details, rent paid, and city type into the HRA Exemption Calculator to estimate your tax-exempt allowances.
The Three-Part Rule
To compute HRA exemption under Section 10(13A) rules, the Income Tax Department evaluates the following three limits. The lowest of these three figures is exempt from tax:
- Actual HRA Received: The total HRA allowance provided by your employer.
- Rent Paid Formula: The actual rent paid during the financial year minus 10% of your basic salary (including dearness allowance, if any).
- Salary Percentage:
- 50% of Basic Salary if you live in a metro city (Delhi, Mumbai, Chennai, or Kolkata).
- 40% of Basic Salary if you live in any other city (non-metro).
Worked Example
Consider a salaried individual living in Mumbai (metro) with a basic salary of ₹50,000 per month, actual HRA received of ₹20,000 per month, and paying rent of ₹18,000 per month:
- Limit 1 (Actual HRA): ₹20,000
- Limit 2 (Rent paid − 10% of basic): ₹18,000 − (10% of ₹50,000) = ₹13,000
- Limit 3 (50% of basic): 50% of ₹50,000 = ₹25,000
- Tax-exempt HRA: ₹13,000 per month (the lowest of the three limits). The remaining ₹7,000 is taxable salary.
Metro vs Non-Metro — Which Cities Qualify?
For HRA tax exemption calculations, only the four major cities qualify for the 50% basic salary cap: Delhi, Mumbai, Kolkata, and Chennai. All other major cities (like Bengaluru, Pune, Hyderabad, and Gurgaon) are categorized under the 40% cap.
When HRA Exemption is NOT Available
HRA exemption cannot be claimed under the following conditions:
- You reside in your own house (no rent paid).
- You opt for the New Tax Regime (HRA exemption is not allowed). Check regime tradeoffs in our Old vs New Regime Guide.
- You pay rent to your spouse (not recognized as a valid transaction under tax rules).
Landlord PAN Requirement
Under Section 194-I of the Income-tax Act, if your annual rent exceeds ₹1,00,000 (₹1 Lakh), it is mandatory to provide your landlord's PAN to your employer to claim the HRA tax benefit.
How to Generate Rent Receipts
To substantiate your HRA exemption claim to your employer, you must submit monthly rent receipts. You can instantly print or download formatted files using our Rent Receipt Generator.
Frequently Asked Questions
How is HRA exemption calculated?
Lowest of: actual HRA received; 50% (metro) or 40% (non-metro) of basic salary; actual rent minus 10% of basic.
Is HRA available in the new tax regime?
No — HRA exemption applies only under the old tax regime.
Do I need my landlord's PAN for HRA?
Yes, if annual rent exceeds ₹1 lakh.
Can I claim HRA if I live in my own house?
No — HRA exemption requires actual rent payments for accommodation not owned by you.
Official references: Section parameters and rules are verified from the Income Tax Department of India database.