How is HRA exemption calculated?

By the India Law Simplified editorial team · Verified against the bare Acts & official portals · Updated 2026-07-28 · ~4 min read

⚡ Quick answer

HRA (House Rent Allowance) exemption under Section 10(13A) is the least of three amounts: (1) the actual HRA you received, (2) the rent you paid minus 10% of your basic salary, and (3) 50% of your basic salary if you live in a metro (Delhi, Mumbai, Kolkata, Chennai) or 40% if you live anywhere else. Whichever is smallest is the exempt amount; the rest of your HRA is taxable. It applies only if you actually pay rent, and only under the old tax regime.

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If you rent your home and your salary includes a House Rent Allowance, HRA exemption is often the single biggest tax-saver available to you. But it's also one of the most misunderstood — the exemption isn't simply the HRA you get; it's the smallest of three formulas. This guide explains the calculation in plain language, walks through a full worked example with numbers, and covers the documents you need and the mistakes that get HRA claims rejected.

1The three-way test

Your HRA exemption is the lowest of these three figures:

The actual HRA received from your employer during the year
The rent you actually paid, minus 10% of your basic salary (+ DA)
50% of your basic salary (+ DA) if you live in a metro — Delhi, Mumbai, Kolkata or Chennai — or 40% for any other city

⚠️ Important'Salary' here means basic pay plus dearness allowance (and commission if it's a fixed percentage of turnover). It does not include other allowances — a common reason claims are miscalculated.

2A full worked example

Suppose you live in Mumbai (a metro) with these annual figures: basic salary ₹6,00,000, HRA received ₹2,40,000, rent paid ₹3,00,000. Compute all three:

Actual HRA received = ₹2,40,000
Rent paid − 10% of basic = ₹3,00,000 − ₹60,000 = ₹2,40,000
50% of basic (metro) = ₹3,00,000

💡 ExampleThe smallest of ₹2,40,000, ₹2,40,000 and ₹3,00,000 is ₹2,40,000 — so your entire HRA of ₹2,40,000 is exempt from tax. If your rent had been only ₹1,50,000, then formula 2 would be ₹1,50,000 − ₹60,000 = ₹90,000, and only ₹90,000 would be exempt — the rest of your HRA would be taxable.

3Documents you need

To claim HRA you must be able to prove you paid rent:

Rent receipts (and a rent agreement is advisable)
The landlord's PAN, if your annual rent exceeds ₹1,00,000
Proof of payment (bank transfer is cleaner than cash)

✅ TipPay rent by bank transfer and keep monthly receipts. If your annual rent crosses ₹1 lakh and you can't provide the landlord's PAN, the exemption can be disallowed.

4Special situations

A few cases come up often:

No rent paid → HRA is fully taxable; you can't claim the exemption.
Living in your own house → no HRA exemption (you're not paying rent).
Paying rent to parents → allowed, if it's genuine: they should own the home, you should actually transfer rent, and they declare it as income.
HRA + home loan together → allowed if your owned house is in a different city, is let out, or you genuinely live in a rented place for work.

Key takeaways

HRA exemption is the least of: actual HRA, rent minus 10% of basic, and 50% (metro)/40% (non-metro) of basic.
'Salary' means basic + DA only — not your whole package.
It applies only if you actually pay rent, and only under the old tax regime.
Keep rent receipts; you need the landlord's PAN if annual rent exceeds ₹1 lakh.
You can claim HRA and a home-loan deduction together in genuine cases (e.g. owned home in another city).

Frequently asked questions

Can I claim HRA in the new tax regime?

No — HRA exemption is available only under the old regime. The new regime does not allow it, which is a key factor when comparing the two regimes if you pay significant rent.

Can I claim HRA if I pay rent to my parents?

Yes, if it's genuine — your parents must own the property, you should actually transfer the rent (ideally by bank), and they must declare that rent as income in their return. Token arrangements without real payment can be disallowed.

What if my employer doesn't give HRA?

If your salary has no HRA component, you can instead claim a deduction for rent paid under Section 80GG (subject to limits), provided you don't own a home where you live and meet the conditions.

Do I need the landlord's PAN to claim HRA?

Only if your total annual rent exceeds ₹1,00,000. In that case you must report the landlord's PAN; without it, the exemption can be denied for the amount above the threshold.