Last updated: July 2026 · For FY 2025-26 (AY 2026-27)

If rent is your single biggest monthly expense, House Rent Allowance (HRA) is quietly one of the most valuable lines on your payslip — but only if you know how to claim it. Get the calculation right and you can shave tens of thousands of rupees off your tax bill every year. Get it wrong (or forget one critical rule) and you could leave that money on the table entirely. This guide breaks down HRA calculation and HRA exemption for FY 2025-26 (AY 2026-27) — the exact formula, a real worked example with a table, the metro-city rules, documentation you'll need, and the one condition that trips up thousands of taxpayers every year.

Read this first: HRA exemption is available only under the old tax regime. If you're on the new regime (which is now the default), you get no HRA benefit — so this decision matters before you do anything else.

Key Takeaways

• HRA exemption under Section 10(13A) = the LEAST of three amounts: (a) actual HRA received, (b) 50% of salary for metro cities / 40% for non-metro, and (c) actual rent paid minus 10% of salary.
• "Salary" here means Basic + Dearness Allowance + commission (as a fixed % of turnover) — not just basic pay.
• Metro cities are Delhi, Mumbai, Kolkata, and Chennai (50%). Everywhere else is 40%. (From FY 2026-27, four more cities join the 50% list — see below.)
• HRA is claimable only under the old tax regime, not the new default regime.
• Your landlord's PAN is mandatory if your annual rent exceeds ₹1,00,000.
• Pay rent but get no HRA? You may still claim a deduction under Section 80GG.

What Is House Rent Allowance (HRA)?

HRA is an allowance your employer pays to help cover the cost of renting a home. It's a standard component of most Indian salary structures. The good news: under Section 10(13A) of the Income Tax Act, a part of your HRA is exempt from tax if you actually live in rented accommodation and pay rent.

The catch is that the entire HRA is rarely exempt. The law caps the exemption using a three-part formula, and you only get the smallest of the three figures. Let's unpack it.

The HRA Exemption Formula (Section 10(13A))

Your exempt HRA is the least of these three amounts:

1. Actual HRA received from your employer during the year.
2. 50% of salary if you live in a metro city, or 40% of salary if you live anywhere else.
3. Actual rent paid minus 10% of salary.

Two things people constantly get wrong:

• "Salary" = Basic + Dearness Allowance (DA) + commission based on a fixed percentage of turnover. It is not your gross CTC, and it is not just basic pay. Leaving out DA can understate your exemption.
• The percentage and the rent test both use the same salary base — so define it once and use it consistently.

Which Cities Count as "Metro" for HRA?

For FY 2025-26, only four cities qualify for the higher 50% rate:

Rate	Cities
50% (metro)	Delhi, Mumbai, Kolkata, Chennai
40% (non-metro)	Every other city — Bengaluru, Pune, Hyderabad, Ahmedabad, Jaipur, Lucknow, etc.

Coming in FY 2026-27: The metro list is set to expand to eight cities, adding Bengaluru, Pune, Hyderabad, and Ahmedabad to the 50% bracket. If you live in one of these, your exemption could rise from next year — but for FY 2025-26, they're still treated as non-metro at 40%.

Step-by-Step: A Worked HRA Calculation (With Table)

Let's calculate a real exemption. Meet Priya, who works in Mumbai (a metro city):

• Basic salary + DA: ₹50,000/month → ₹6,00,000/year
• HRA received: ₹20,000/month → ₹2,40,000/year
• Actual rent paid: ₹22,000/month → ₹2,64,000/year

Step 1 — Actual HRA received: ₹2,40,000

Step 2 — 50% of salary (metro): 50% × ₹6,00,000 = ₹3,00,000

Step 3 — Rent minus 10% of salary: ₹2,64,000 − (10% × ₹6,00,000) = ₹2,64,000 − ₹60,000 = ₹2,04,000

Now compare all three:

#	Component	Amount (per year)
1	Actual HRA received	₹2,40,000
2	50% of salary (metro)	₹3,00,000
3	Rent paid − 10% of salary	₹2,04,000 ✅

HRA exemption = the least of the three = ₹2,04,000.

So of Priya's ₹2,40,000 HRA, ₹2,04,000 is tax-free and the remaining ₹36,000 is added to her taxable salary. If she were in the 20% slab, that single calculation saves her roughly ₹40,800 in tax for the year.

Notice how the rent test (Step 3) is what limited her exemption — that's the most common binding constraint. Want to skip the arithmetic? Our HRA calculator does this in seconds.

Metro vs Non-Metro: Why Your City Matters

The same salary and rent produce a different exemption depending on your city, because of the 50% vs 40% rule. Using Priya's numbers (Basic + DA ₹6,00,000), watch how Step 2 changes:

	Metro (Mumbai)	Non-metro (e.g. Jaipur)
Step 1 — Actual HRA	₹2,40,000	₹2,40,000
Step 2 — % of salary	50% = ₹3,00,000	40% = ₹2,40,000
Step 3 — Rent − 10% salary	₹2,04,000	₹2,04,000
Exemption (least)	₹2,04,000	₹2,04,000

In Priya's case the rent test binds in both cities, so the outcome is the same. But if her rent were higher, the metro would let her exempt more — because the 50% ceiling in Step 2 is more generous. The higher your rent relative to salary, the more the metro/non-metro rate decides your final number.

What If You Pay Rent But Get No HRA? (Section 80GG)

Self-employed professionals and salaried employees whose CTC has no HRA component aren't left out. Section 80GG lets them deduct rent paid, as the least of:

• ₹5,000 per month (i.e. ₹60,000 per year),
• 25% of total income (excluding capital gains), or
• Actual rent paid minus 10% of total income.

To claim it, you must file Form 10BA and neither you, your spouse, nor your minor child can own a home in the city where you live/work. Like HRA, Section 80GG is available only under the old tax regime.

HRA Only Works Under the Old Tax Regime

This deserves its own heading because it's the mistake with the biggest price tag. Since Budget 2020, the new tax regime (Section 115BAC) is the default, and it does not allow the HRA exemption, Section 80GG, or most other allowances.

So before you optimise your HRA, decide your regime. If you have high rent and other deductions (80C, home loan interest), the old regime plus HRA may beat the new regime's lower slab rates — but you have to compute both. Use our regime tax calculator and tax comparison chart to see which one leaves you richer.

Documentation Checklist

To claim HRA smoothly and survive any scrutiny, keep:

• ✅ Rent receipts for the full claim period, showing rent amount, period, and landlord details.
• ✅ A rent agreement covering the claim period.
• ✅ Your landlord's PAN — mandatory if annual rent exceeds ₹1,00,000. If the landlord has no PAN, obtain a signed self-declaration (per CBDT Circular 8/2013).
• ✅ Form 12BB submitted to your employer to declare HRA (and other exemptions) for accurate TDS.
• ✅ Proof of payment — bank transfers or UPI are far safer than cash.
• ✅ For Section 80GG, keep Form 10BA and rent proof.

Special Situations You Should Know

• Living in your own house or paying no rent: No HRA exemption. You need to actually pay rent to a landlord.
• Paying rent to parents: Allowed — but it must be genuine. Transfer rent to their account, and they must declare it as rental income.
• HRA + home loan together: Yes, you can claim both if you rent in one city and own (loan-funded) property elsewhere, or genuinely can't occupy your owned home. Keep clear evidence.
• Changed cities mid-year: Calculate the exemption separately for each period using the correct metro/non-metro rate.

Common Mistakes to Avoid

• Assuming you can claim HRA in the new regime — you can't. Check your regime first.
• Using basic salary only and forgetting DA and commission in the salary base.
• Applying the metro rate to a non-metro city (only Delhi, Mumbai, Kolkata, Chennai are metros for FY 2025-26).
• Missing the landlord's PAN when rent crosses ₹1,00,000/year — a frequent reason claims get disallowed.
• Paying rent in cash with no receipts — undocumented rent is the first thing scrutiny targets.
• Fake rent to relatives with no actual money movement — this is treated as tax evasion.

Expert Tips

• Structure your salary smartly. If your employer allows flexi-pay, a well-sized HRA component (relative to basic) can maximise your exemption — model it with our salary structure guide.
• If you live in Bengaluru, Pune, Hyderabad, or Ahmedabad, note that these become 50% metros from FY 2026-27 — a reason to revisit your numbers next year.
• No HRA in your CTC? Don't forget Section 80GG — many freelancers miss it entirely.
• Digitise everything. Store receipts, agreements, and PAN declarations in one folder so filing is painless.
• Always compute both regimes before deciding — the HRA benefit only counts if the old regime wins overall.

Frequently Asked Questions

How do I calculate my HRA exemption?

Take the least of three figures: (1) actual HRA received, (2) 50% of Basic+DA if you live in a metro / 40% if non-metro, and (3) actual rent paid minus 10% of Basic+DA. The smallest is your exempt amount; the rest is taxable. Our HRA calculator does the math instantly.

Which cities are metro cities for HRA?

For FY 2025-26, only Delhi, Mumbai, Kolkata, and Chennai qualify for the 50% rate. All other cities use 40%. From FY 2026-27, Bengaluru, Pune, Hyderabad, and Ahmedabad are set to join the 50% list.

Can I claim HRA under the new tax regime?

No. HRA exemption under Section 10(13A) is available only under the old tax regime. The new regime is the default and does not allow it.

Is my landlord's PAN required to claim HRA?

Yes, if your annual rent exceeds ₹1,00,000. If the landlord has no PAN, you need a signed self-declaration from them.

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

Yes, if the situations are genuine — for example, you rent in the city you work in while owning a loan-funded home elsewhere. Keep documentation for both.

I don't get HRA. Can I still claim rent?

Yes — through Section 80GG, which lets you deduct the least of ₹5,000/month, 25% of total income, or rent minus 10% of total income. It requires Form 10BA and is old-regime only.

Do I need to submit rent receipts to my employer?

Yes. Declare HRA via Form 12BB with rent receipts (and landlord PAN if applicable) so your employer applies the exemption to your TDS. Otherwise you can still claim it while filing your ITR.

Summary

HRA is one of the most powerful tax breaks available to renters — but it comes with strict rules. Remember the three-part formula (and that you only get the least of the three), use the correct Basic + DA salary base, know your city's metro status, and keep airtight documentation including your landlord's PAN above ₹1 lakh rent. Most importantly: HRA only works under the old tax regime, so decide your regime first. If you pay rent without HRA, don't overlook Section 80GG.

Not sure how much you can exempt — or whether the old regime is worth it for you? Use our free HRA and CTC calculator, the regime tax calculator, and the in-hand salary calculator to get your exact numbers in seconds.