House Rent Allowance (HRA) is one of the most valuable tax-saving components for salaried employees. It's an allowance paid by employers to help with housing expenses, and a significant portion of it can be exempted from income tax. The amount you can claim as exemption depends on three factors: the HRA you receive, the actual rent you pay, and your basic salary. The exemption is calculated as the minimum of these three methods.
For FY 2025-26, the HRA exemption calculation uses three methods: actual HRA received, rent paid minus 10% of basic salary, and 50% of basic salary for metro cities (Mumbai, Delhi, Kolkata, Chennai) or 40% for non-metro cities. Whichever is the lowest becomes your HRA exemption. This exemption significantly reduces your taxable income and can save you thousands in taxes depending on your rent and salary structure.
It's important to note that HRA exemption is only available under the old tax regime. If you've opted for the new tax regime with simplified rates and fewer deductions, you cannot claim HRA exemption. This is one of the key reasons why many employees choose to stay in the old tax regime despite higher tax rates, especially if they're paying high rent in metro cities.
To claim HRA exemption, you need to provide a rent receipt from your landlord if your annual rent exceeds ₹1 lakh. The landlord's PAN is also required if the annual rent exceeds ₹1 lakh. Make sure you have proper documentation to support your claim during ITR filing. If you're staying in your own house, you cannot claim HRA exemption.
Calculating HRA exemption can be tricky, especially when trying to optimize between the old and new tax regimes. Use our income tax calculator to compare both regimes and see which one saves you more money. Sometimes, the HRA exemption benefit makes the old regime more beneficial even if the base tax rate is higher.
If you're also considering other tax-saving investments, don't forget that HRA exemption works alongside deductions like Section 80C, 80D for medical insurance, and others. Together, these can significantly reduce your total tax liability. To understand your overall tax burden, use our income tax calculator which includes all these factors including HRA, deductions, and TDS.
For complete information about HRA exemption rules, documentation requirements, and limitations, refer to the official Income Tax Department's HRA exemption guide for FY 2025-26, including metro city provisions and rent receipt requirements.
Understanding HRA exemption becomes much easier when you see a real-life example. Below is a simple illustration showing how HRA exemption is calculated for a salaried employee living in a metro city. The same method applies to non-metro cities with a lower percentage limit.
| Basic Salary (Monthly) | ₹50,000 |
| HRA Received (Monthly) | ₹25,000 |
| Rent Paid (Monthly) | ₹30,000 |
| City Type | Metro (50% of Basic) |
| HRA Exemption (Lowest of 3) | ₹20,000 |
This example clearly shows that HRA exemption is not the full rent paid or full HRA received, but the lowest value among the three prescribed methods under the Income Tax Act.
Choose between Metro City (50% of basic) or Non-Metro City (40% of basic) for HRA calculation.
Input your basic salary component. This is used to calculate 10% deduction and 50%/40% limit.
Input the HRA amount you receive from your employer. This is the maximum possible exemption.
Input the actual rent you pay for your accommodation. This is used in Method 2 calculation.
Press "Calculate HRA Exemption" to get instant results with detailed breakdown and tax savings.
Check the summary cards, detailed breakdown, and charts to understand your HRA benefits.
Maximize Exemption:
Documentation:
HRA exemption is calculated as the minimum of three methods. Ensure you have proper documentation for rent payments and that your landlord's PAN is available if rent exceeds ₹1 lakh annually.
One of the most common questions taxpayers ask is whether they should opt for the old tax regime to claim HRA exemption or switch to the new tax regime with lower slab rates. The table below highlights the key differences.
| Criteria | Old Tax Regime | New Tax Regime |
|---|---|---|
| HRA Exemption | ✅ Allowed | ❌ Not Allowed |
| Standard Deduction | ₹50,000 | ₹50,000 |
| 80C / 80D Deductions | ✅ Allowed | ❌ Not Allowed |
| Best For | High rent & deductions | Low deductions |
If you live in a metro city and pay significant rent, the old tax regime often results in lower tax outgo due to HRA exemption. Always compare both regimes before finalising your choice.
| Method | Calculation | Description |
|---|---|---|
| Method 1 | Actual HRA received | Maximum possible exemption |
| Method 2 | Rent paid - 10% of basic salary | Based on actual rent paid |
| Method 3 | 50% of basic (metro) / 40% (non-metro) | Statutory limit based on city type |
• Mumbai (Maharashtra)
• Delhi (Delhi)
• Kolkata (West Bengal)
• Chennai (Tamil Nadu)
• All other cities in India
• Tier 2 and Tier 3 cities
• Smaller towns and villages
• Any city not listed as metro
While HRA exemption is a powerful tax-saving benefit, many taxpayers lose out on exemptions or face notices due to avoidable mistakes. Being aware of these common errors can help you stay compliant and maximise your tax savings.
1. Claiming HRA while living in own house
2. Not collecting landlord’s PAN when annual rent exceeds ₹1 lakh
3. Paying rent in cash without proper receipts
4. Claiming HRA under the new tax regime
5. Inflating rent amount without actual payment proof
6. Forgetting to revise HRA details after salary changes
Using an accurate HRA calculator and maintaining proper documentation ensures that your HRA exemption stands up to scrutiny during income tax assessment.
House Rent Allowance (HRA) is a component of salary that provides tax exemption for rent paid. It's calculated as the minimum of three methods: actual HRA received, rent paid minus 10% of basic salary, or 50%/40% of basic salary for metro/non-metro cities.
Only four cities are considered metro for HRA purposes: Mumbai, Delhi, Kolkata, and Chennai. All other cities in India are classified as non-metro and are eligible for 40% of basic salary as HRA exemption.
No, HRA exemption is not available if you live in your own house. You can only claim HRA exemption if you are paying rent to someone else for accommodation that you actually occupy.
You need rent receipts, rent agreement (if available), and landlord's PAN card (if rent exceeds ₹1 lakh annually). Bank statements showing rent payments can also be helpful for verification.
Yes, you can claim HRA if you pay rent to your parents, provided they are not your dependents and you have proper documentation. However, ensure the rent is reasonable and actually paid.
If your rent is less than 10% of basic salary, Method 2 will result in zero or negative value, and the HRA exemption will be calculated based on Method 1 (actual HRA) or Method 3 (50%/40% of basic), whichever is lower.
No, you can only claim HRA exemption for one property at a time. If you have multiple rented properties, you can only claim exemption for the property you actually occupy.
There's no specific limit on HRA exemption, but it's calculated as the minimum of three methods. The effective limit is 50% of basic salary for metro cities and 40% for non-metro cities, subject to actual rent paid and HRA received.