How HRA exemption is actually calculated
The three limits, why the smallest one wins, and the documents you need before the exemption survives a query.
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In short
- The exemption is the smallest of three figures — HRA received, rent minus 10% of basic, and 50% or 40% of basic. It is never the sum.
- Rent minus 10% of basic is the binding limit for most people, which means a low rent produces a small exemption regardless of the HRA on the payslip.
- Metro cities get 50% of basic, everywhere else gets 40%. Only Delhi, Mumbai, Kolkata and Chennai count as metros for this section.
- HRA exemption is available only under the old tax regime. Under the new regime, which is the default, it does not exist.
- Rent above ₹1,00,000 a year requires the landlord's PAN, and rent above ₹50,000 a month requires the tenant to deduct TDS.
House rent allowance is a salary component, and part of it can be exempt from tax under section 10(13A) if you actually pay rent. The exemption is not the HRA on your payslip, and it is not the rent you pay. It is the smallest of three separate figures.
The three limits
Compute all three and take the lowest:
exemption = min(HRA received, basic × 0.5 or 0.4, rent - basic × 0.1), all on annual figures, with 0.5 for a metro city and 0.4 elsewhere. The tax saved is then exemption × your slab rate.
- Actual HRA received from your employer
- Rent paid minus 10% of basic salary (plus dearness allowance where it forms part of retirement benefits)
- 50% of basic if you live in a metro, 40% otherwise
The one that comes out smallest is your exemption. Nothing is added.
Take a monthly basic of ₹50,000, HRA of ₹20,000 and rent of ₹18,000 in a metro:
| Limit | Annual figure |
|---|---|
| HRA received | ₹2,40,000 |
| Rent minus 10% of basic | ₹1,56,000 |
| 50% of basic (metro) | ₹3,00,000 |
The exemption is ₹1,56,000, the taxable HRA is ₹84,000, and in the 30% bracket the exemption saves ₹46,800 of tax.
Why the rent limit usually binds
For most salaried people the second limit is the smallest, and it is worth seeing why.
Rent minus 10% of basic only becomes large when the rent is large relative to salary. At a ₹50,000 basic, 10% is ₹5,000 a month — so the exemption is your rent less ₹5,000, capped by the other two limits.
| Monthly rent | Exemption (annual) | Tax saved at 30% |
|---|---|---|
| ₹6,000 | ₹12,000 | ₹3,600 |
| ₹18,000 | ₹1,56,000 | ₹46,800 |
| ₹30,000 | ₹2,40,000 | ₹72,000 |
At ₹30,000 the binding limit has switched: rent minus 10% would be ₹3,00,000, but the HRA actually received is only ₹2,40,000, and you cannot exempt more allowance than you were paid.
Paying rent below 10% of your basic produces no exemption at all, whatever the payslip says. This catches people living with family and paying a nominal amount.
Metro against non-metro
Only Delhi, Mumbai, Kolkata and Chennai are metros for section 10(13A). Bengaluru, Hyderabad, Pune, Ahmedabad and every other city are not, whatever their size or cost of living.
The difference shows up only when the third limit is the binding one. At a ₹50,000 basic with ₹25,000 of HRA and ₹30,000 of rent:
| City type | Third limit | Exemption | Binding limit |
|---|---|---|---|
| Metro | ₹3,00,000 | ₹3,00,000 | HRA received |
| Non-metro | ₹2,40,000 | ₹2,40,000 | 40% of basic |
₹60,000 of exemption, or ₹18,000 of tax at 30%, turning on which city the flat is in.
The four-city list is statutory and has not been updated in decades, which is why Bengaluru at Mumbai rents gets Bengaluru's percentage.
The new regime removed it
This is the largest single point about HRA today. The exemption exists only under the old tax regime. Under the new regime, which has been the default since FY 2023-24, HRA is fully taxable.
For most taxpayers the new regime is cheaper overall despite this, because its slabs are much wider. The exception is exactly the person HRA was designed for: someone paying substantial rent in an expensive city, often alongside 80C investments and health insurance, for whom the deductions together outweigh the wider slabs.
Compute both regimes before choosing. Salaried taxpayers may switch every year, so the decision is annual rather than permanent.
What you need on file
The exemption is claimed on the strength of documents, and this is where claims fail.
Rent receipts, monthly or quarterly, with the landlord's name and address, the amount, the period and a signature. A revenue stamp is required where a single cash receipt exceeds ₹5,000.
The landlord's PAN, mandatory where annual rent exceeds ₹1,00,000 — that is ₹8,333 a month, so it applies to most urban tenancies. If the landlord refuses, a declaration with their reason is technically permitted and is regularly rejected in scrutiny.
A rent agreement, not strictly required but the first thing asked for if the claim is questioned.
Proof of payment. Bank transfer or cheque. Cash rent with matching receipts is legal and is the pattern most often disallowed, because there is no independent evidence the money moved.
The Income Tax Department has issued notices to salaried taxpayers over HRA claims with mismatched or fabricated documentation, including claims against landlords who never declared the rental income. The cross-check is now automated.
Renting from family
Paying rent to a parent or spouse is legitimate and heavily scrutinised.
It requires the arrangement to be real: the relative must own the property, there must be a genuine agreement, the money must actually move by bank transfer, and the relative must declare the rent as income in their own return.
Where all of that holds, it can be efficient — a parent with little other income may pay no tax on the rent while the salaried child claims the exemption at 30%. Where any of it is missing, the claim is disallowed with interest and penalty.
Paying rent to a spouse is possible in principle and is looked at particularly closely, because the couple's finances are usually not separable in practice.
Related situations
No HRA in your salary? Section 80GG allows a deduction for rent paid, up to the least of ₹5,000 a month, 25% of total income, or rent minus 10% of income. It is far smaller than 10(13A) and requires Form 10BA and that you own no residential property in the city.
Home loan and rent together? Both can be claimed if the situation is genuine — you own a property in one city and rent in another for work, or your own property is genuinely not habitable. Claiming both for properties in the same city invites a question that is difficult to answer well.
Rent above ₹50,000 a month? The tenant must deduct 5% TDS under section 194-IB and deposit it, once a year, using Form 26QC. This applies to individuals, not only to businesses, and it is very widely ignored — with a penalty attached.
Getting the most out of it
The exemption responds to three inputs, and only some of them are yours to move.
The salary structure. The exemption cannot exceed the HRA on the payslip, so someone paying ₹35,000 of rent with ₹10,000 of HRA is capped at ₹10,000. Many employers will restructure the components on request without changing the total cost to company, which converts otherwise fully taxable salary into partly exempt salary. This is the single largest lever and it costs the employer nothing.
A high basic cuts both ways. It raises the 50%/40% limit and it raises the 10% deducted from rent. For most salary structures the second effect is smaller, so a higher basic usually helps — and it also raises PF and gratuity, which are separately valuable.
Timing. The exemption is computed month by month, not annually, so a mid-year move, a rent increase or a period of living rent-free is handled correctly only if the periods are entered separately. Most employer portals allow this and most employees enter one annual figure.
Where claims go wrong
Declaring more than you pay. The payroll declaration in January is an estimate; the proof submitted in March is the claim. A gap between them is corrected in the March salary, sometimes uncomfortably.
No landlord PAN above ₹1 lakh. The most common reason a claim is disallowed outright.
Cash rent with no bank trail. Legal, and the first thing questioned.
Claiming for a property you own. You cannot pay yourself rent, and you cannot claim HRA for the home you own and occupy.
Forgetting to claim at all. If the employer's TDS did not account for HRA, the exemption can still be claimed when filing the return — the deduction does not depend on the employer having processed it.
What this calculator assumes
- Basic salary as you enter it. Include dearness allowance only where it forms part of retirement benefits.
- Metro status per the statutory four cities, not by population.
- Rent paid for the full period entered, with no months of vacancy.
- The exemption is the smallest of the three limits and is available only under the old regime.
- Tax saved is computed at the slab rate you select, before cess.