House Rent Allowance exemption is the most commonly miscalculated deduction on an Indian tax return. Most people assume the exemption equals the HRA figure on their payslip. It almost never does.
The exempt amount is the lowest of three separate calculations, and this calculator runs all three so you can see which one is capping your claim.
The three-way test
Section 10(13A) exempts the least of the following three amounts. Whichever is smallest is your exemption — the other two are irrelevant to the final number, however large they are.
Exemption = MIN( HRA received, Rent paid − 10% of salary, 50% or 40% of salary )
- ·Salary here means Basic + Dearness Allowance (+ commission on turnover, if part of your terms)
- ·50% applies in the eight cities classified as metro — see below, this list changed in 2026
- ·40% applies everywhere else
- ·It is your place of residence that matters, not where your employer is registered
The metro list changed on 1 April 2026 — check which year you are filing for
The Income-tax Rules, 2026 (Rule 279) added Bengaluru, Hyderabad, Pune and Ahmedabad to the original four of Delhi, Mumbai, Kolkata and Chennai, taking the 50% list to eight cities. This applies to income from FY 2026-27 onwards. For a return covering FY 2025-26, the old four-metro rule still governs, so those four newer cities remain at 40% for that year. Getting the year wrong in either direction changes your exemption.
Which cities qualify for 50%
This was the first change to the HRA metro list in decades, and a good deal of advice online still states the old four-city rule as though it were current. If you live in one of the four added cities, an out-of-date article will have you claiming 40% when you are entitled to 50%.
Note that "metro" here is a definition specific to this section of the tax rules. It is not the census definition, and it does not follow how large or expensive a city has become — Gurugram and Noida remain at 40% despite rents that rival any of the eight.
| City | Rate from FY 2026-27 | Rate for FY 2025-26 and earlier |
|---|---|---|
| Delhi, Mumbai, Kolkata, Chennai | 50% | 50% |
| Bengaluru, Hyderabad, Pune, Ahmedabad | 50% | 40% |
| Everywhere else (Gurugram, Noida, Jaipur, Kochi…) | 40% | 40% |
A worked example
Take a basic salary of ₹6,00,000 a year, HRA of ₹3,00,000, and rent paid of ₹2,40,000 (₹20,000 a month) in Jaipur — a non-metro city, so the third test uses 40%.
- ·The taxable remainder: HRA received of ₹3,00,000 minus the ₹1,80,000 exemption leaves ₹1,20,000 added to taxable income. Anyone assuming the full ₹3,00,000 was exempt has understated their income by ₹1,20,000.
- ·Why test 2 usually binds: For most salaried people the rent-minus-10% test is the smallest of the three, because the 10% deduction bites and rent rarely exceeds half of basic salary. If your rent is low relative to your salary, this test can even go to zero. Worth noting in the example above: the answer would be the same in a 50% metro, because test 2 is already the lowest — the metro rate only changes your exemption when test 3 is the binding one.
| Test | Calculation | Amount |
|---|---|---|
| 1. Actual HRA received | — | ₹3,00,000 |
| 2. Rent − 10% of salary | ₹2,40,000 − ₹60,000 | ₹1,80,000 |
| 3. 40% of salary (non-metro) | 40% × ₹6,00,000 | ₹2,40,000 |
| Exemption | Lowest of the three | ₹1,80,000 |
Conditions that trip people up
- ·Old regime only: HRA exemption is not available under the new tax regime. If you are claiming significant HRA, factor it into the old versus new regime comparison before choosing — for many renters it is the single item that keeps the old regime ahead.
- ·You must actually pay rent: The exemption requires rent genuinely paid for accommodation you occupy. You cannot claim it while living in a property you own.
- ·Landlord PAN: Required where annual rent exceeds ₹1,00,000. Without it, the employer is expected to deny the exemption at source.
- ·Paying rent to family: Permitted, and legitimate where rent is genuinely paid and the recipient declares it as income. Paying a spouse is the arrangement most likely to be challenged. Keep bank transfers and a written agreement, not cash.
- ·No HRA in your salary: If your package has no HRA component you cannot claim under 10(13A), but section 80GG may allow a smaller deduction for rent paid, subject to its own limits.
What to keep on file
HRA is a routinely scrutinised claim, and the documentation burden falls on you rather than your employer. Retain rent receipts or bank transfer records for every month claimed, a rent agreement naming you as tenant, and the landlord PAN where rent exceeds ₹1 lakh a year.
Rent paid in cash with hand-written receipts and no corresponding bank debit is the pattern most likely to be disallowed on examination. Paying by transfer costs nothing and makes the claim defensible.
Rules change between budgets
Thresholds, metro classification and regime rules are revised periodically. This calculator reflects the long-standing structure of section 10(13A), but confirm current-year specifics before filing, and consult a qualified tax professional where the amounts are material.
Last reviewed August 2, 2026 · How we check our calculators