HRA Exemption Calculation: How to Maximise Your House Rent Allowance
Calculate your HRA exemption accurately. Formula, metro vs non-metro cities, and documentation required.
What Is HRA?
House Rent Allowance (HRA) is a component of salary paid by employers to help employees meet rental costs. Under the old income tax regime, HRA received is partially exempt from income tax — meaning you do not pay tax on the exempt portion.
HRA exemption is NOT available under the new tax regime (default from FY 2023-24). This is one reason the old regime may be better for people who pay significant rent.
HRA Exemption Formula
The HRA exemption is the MINIMUM of these three values:
You pay tax only on the HRA amount above the exemption.
Metro vs Non-Metro Cities
50% of basic: Delhi, Mumbai, Kolkata, Chennai (the four metro cities for HRA purposes)
40% of basic: All other cities including Bangalore, Hyderabad, Pune, Gurugram
Example Calculation
Monthly basic salary: Rs 40,000 (Annual: Rs 4,80,000)
Monthly HRA received: Rs 20,000 (Annual: Rs 2,40,000)
Monthly rent paid: Rs 18,000 (Annual: Rs 2,16,000)
City: Bangalore (40% city)
Three limits:
HRA exemption = Minimum of (2,40,000 / 1,92,000 / 1,68,000) = Rs 1,68,000
Taxable HRA = Rs 2,40,000 - Rs 1,68,000 = Rs 72,000
Documents Required
Rent receipts for the year. Rent agreement. If annual rent exceeds Rs 1 lakh, landlord's PAN is also required.
Frequently asked questions
What is the HRA exemption limit in India?
There is no fixed limit — HRA exemption is the minimum of three values: actual HRA received, 50%/40% of basic salary (metro/non-metro), or actual rent paid minus 10% of basic salary.
Can I claim HRA if I pay rent to my parents?
Yes — you can pay rent to parents (not spouse) and claim HRA exemption if the arrangement is genuine. Your parents must declare this rental income in their ITR. Keep rent receipts and an agreement.