HRA Exemption Calculation: How Much of Your HRA Is Tax-Free?

The short answer

Under the old tax regime, the tax-free part of your House Rent Allowance is the lowest of three amounts:

The HRA your employer actually pays you

50% of (basic salary + DA) if you live in Delhi, Mumbai, Kolkata or Chennai, or 40% elsewhere

Rent paid minus 10% of (basic salary + DA)

Whatever HRA is left over is taxable. The free HRA Calculator shows all three limits side by side so you can see which one applies to you.

Important: HRA exemption is only available under the old tax regime. If you're on the new regime, which is the default, your entire HRA is taxable.

Who can claim HRA exemption

• You are a salaried employee and your salary includes HRA.
• You live in rented accommodation and pay rent.
• You don't own a house in the city where you work and live (owning one elsewhere is fine).
• You file under the old tax regime.

Self-employed people don't get HRA. They may be able to claim a separate deduction for rent under Section 80GG, which has different limits.

The three limits, explained

Limit 1: Actual HRA received. You can never claim more than your employer paid you as HRA.

Limit 2: 50% or 40% of salary. "Salary" here means basic pay plus dearness allowance (if DA counts towards retirement benefits) plus any commission based on a fixed percentage of turnover. It doesn't include other allowances. Only four cities count as metros for this rule: Delhi, Mumbai, Kolkata and Chennai. Bengaluru, Hyderabad, Pune and Gurugram use 40%, even though they're often called metros.

Limit 3: Rent minus 10% of salary. This is the one that bites when rent is low relative to salary. If your rent is less than 10% of your basic + DA, this limit is zero and you get no exemption at all.

Worked example 1: Metro city

Monthly basic + DA ₹40,000, HRA received ₹20,000, rent ₹18,000, living in Mumbai.

Limit	Calculation	Amount
Actual HRA	As paid	₹20,000
50% of salary	50% × ₹40,000	₹20,000
Rent − 10% of salary	₹18,000 − ₹4,000	₹14,000

Exempt HRA is the lowest: ₹14,000 a month (₹1,68,000 a year). Taxable HRA is ₹6,000 a month.

Worked example 2: Non-metro city

Same salary and HRA, rent ₹25,000, living in Gurugram (non-metro for this rule).

Limit	Calculation	Amount
Actual HRA	As paid	₹20,000
40% of salary	40% × ₹40,000	₹16,000
Rent − 10% of salary	₹25,000 − ₹4,000	₹21,000

Exempt HRA is ₹16,000 a month. Paying more rent wouldn't help here; the 40% limit is the cap.

Worked example 3: Low rent

Basic + DA ₹80,000, HRA ₹32,000, rent ₹7,500.

Rent − 10% of salary = ₹7,500 − ₹8,000 = negative, so limit 3 is ₹0. No exemption. The calculator shows a warning when this happens.

Old regime vs new regime

The new tax regime has lower slab rates but removes most exemptions and deductions, including HRA, 80C and home loan interest on a self-occupied house. Whether you're better off depends on how much you can claim under the old regime. HRA is often the single biggest exemption for renters in big cities, so run both calculations before choosing. The Income Tax Calculator compares the two regimes.

Documents you need

• Rent receipts for each month, with the landlord's name, address, amount and signature. The Rent Receipt Generator creates them.
• Landlord's PAN if the annual rent you pay is more than ₹1,00,000. If the landlord has no PAN, you'll need a declaration from them.
• Rent agreement: not always demanded by employers, but useful if the tax department asks.

Paying by bank transfer creates a clear record. Cash payments are allowed but harder to prove.

Part-year situations

Changing jobs. Each employer calculates HRA only for the months you worked there. When you file your return, add up the exemption for each period.

Moving cities. If you moved from Pune (40%) to Mumbai (50%) mid-year, calculate the months in each city separately with the right percentage and that period's rent.

A salary revision. If your basic pay changed in, say, April after an appraisal, use the old basic for the months before and the new basic after. Limits 2 and 3 both depend on basic + DA, so both change.

HRA vs Section 80GG

If your employer doesn't pay HRA, or you're self-employed, Section 80GG may let you deduct some rent instead, again only under the old regime. The deduction is the lowest of:

• Rent paid minus 10% of your adjusted total income
• 25% of your adjusted total income
• ₹5,000 per month

You'll need to file Form 10BA, and neither you nor your spouse or minor child can own a house in the city where you live. The limits are generally lower than HRA, so salaried employees with HRA in their pay are usually better off claiming HRA.

A full-year example

Ananya earns basic + DA of ₹60,000 a month and HRA of ₹24,000 a month. She lives in Hyderabad (40%) and pays ₹26,000 rent.

Limit	Monthly	Yearly
Actual HRA	₹24,000	₹2,88,000
40% of salary	₹24,000	₹2,88,000
Rent − 10% of salary	₹20,000	₹2,40,000

Her exemption is ₹2,40,000 a year under the old regime. In a 30% slab plus 4% cess, that's about ₹74,880 less tax, which is the number to compare against the new regime's lower rates.

Common mistakes

Assuming Bengaluru or Hyderabad is a metro. For HRA, only four cities use 50%.

Paying rent to a parent without a paper trail. Paying rent to your parents can be legitimate if they own the house, but they must show the rent as income, and you should pay by bank transfer with receipts.

Claiming HRA and a home loan in the same city. Possible in specific situations, for example if you can't live in the house you own, but it draws scrutiny. Keep documents ready.

Missing the employer deadline. If you don't submit proofs in time, your employer deducts TDS on the full HRA. You can still claim the exemption when filing your return, but you'll wait for the refund.

Annual vs monthly

The calculator works monthly. If your rent, salary or city changed during the year, the exemption is worked out for each period separately and added up, so calculate each period on its own.

*This guide explains the general rules and is not tax advice. Rules can change in each Union Budget; check the current year's rules or ask a tax professional for your situation.*