How is HRA exemption calculated?

By the India Law Simplified editorial team · Verified against the bare Acts & official portals · Updated 2026-08-18 · ~8 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.

5Paying rent to a parent or a relative

Paying rent to a parent and claiming HRA is lawful. It is also one of the most closely examined claims in the entire return, because it is so often done on paper only.

For it to hold up, the arrangement has to be real: the property must actually be owned by the person you pay, you must genuinely live there, the rent should move by bank transfer rather than cash, and there should be a rent agreement and receipts. Critically, the recipient must declare that rent as income from house property in their own return.

⚠️ ImportantThe claim fails most often not because the relationship is disallowed, but because the recipient never declared the income — which makes the mismatch obvious.

6No HRA in your salary? Section 80GG

If you pay rent but your salary contains no HRA component, or you are self-employed, HRA exemption is unavailable — but section 80GG may be.

The deduction is the least of ₹5,000 a month, 25% of total income, or rent paid in excess of 10% of total income. You must file Form 10BA, and neither you, your spouse nor your minor child may own residential accommodation at the place where you live and work.

⚠️ ImportantSection 80GG sits in Chapter VI-A, so it is available under the old regime only. Under the new regime there is no equivalent relief for rent.

7Which cities actually count as metro

The 50% limb of the calculation applies only to four cities: Delhi, Mumbai, Kolkata and Chennai. Everywhere else is 40%, including Bengaluru, Hyderabad, Pune and Gurugram, which surprises people every year.

The test is where you reside, not where your employer's office is registered. If you live in a non-metro and commute, the 40% limb applies.

8The landlord's PAN, and the TDS you may owe

Two documentary obligations catch salaried taxpayers, and both bite at the point of claiming.

Where annual rent exceeds ₹1 lakh, you must report the landlord's PAN to your employer to claim HRA through payroll. Without it the exemption is generally denied at source, and you are left claiming it in the return with the burden of proof on you.

Separately, where rent exceeds ₹50,000 per month, section 194-IB requires you — an individual or HUF not subject to tax audit — to deduct TDS yourself. The rate was reduced from 5% to 2% with effect from 1 October 2024. It is deducted once a year, in the last month of the tenancy or of the financial year, and paid using Form 26QC.

⚠️ ImportantThe 194-IB obligation applies to the tenant personally. Most people paying ₹50,000-plus rent are unaware of it, and the failure surfaces years later with interest and a late-filing fee attached.

Key takeaways

The exemption is the least of three amounts — never simply the HRA you receive.
Only Delhi, Mumbai, Kolkata and Chennai count as metro for the 50% limb.
Rent to a parent is allowed but must be genuine, banked, and declared by the recipient.
Report the landlord's PAN where annual rent exceeds ₹1 lakh.
Rent above ₹50,000 a month makes you liable to deduct TDS under 194-IB, at 2% since 1 October 2024.
No HRA in your salary? Section 80GG may apply, but only under the old regime.

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.

Which cities count as metro for the 50% calculation?

Only Delhi, Mumbai, Kolkata and Chennai. Everywhere else uses the 40% limb, including Bengaluru, Hyderabad, Pune and Gurugram. The test is where you reside, not where your employer is registered.

Do I have to deduct TDS on my rent?

If you pay more than ₹50,000 a month and are an individual or HUF not subject to tax audit, yes — section 194-IB applies. The rate was reduced from 5% to 2% with effect from 1 October 2024. It is deducted once, in the last month of the tenancy or of the financial year, and paid using Form 26QC.

What is section 80GG and when does it help?

It is the deduction for rent paid where your salary contains no HRA, or you are self-employed. It is the least of ₹5,000 a month, 25% of total income, or rent exceeding 10% of total income, claimed by filing Form 10BA. It is available under the old regime only.

My employer rejected my HRA claim — is it lost?

No. If the exemption was denied at payroll — commonly for a missing landlord PAN — you can still claim it in your return, provided the underlying facts are genuine and you hold the agreement, receipts and proof of payment.

Can I claim HRA and a home-loan deduction at the same time?

Yes, in the old regime, and it is common — for example where you own a house in one city on a loan and rent accommodation in another for work. You claim HRA on the rent you pay and interest under section 24(b) on the let-out or self-occupied property. The claim needs to be genuine on both sides, because claiming rent in the same city as a self-occupied house invites scrutiny.