How HRA exemption is calculated
The exempt HRA is the lowest of the following three amounts, all taken for the same period (usually the full financial year):
- Actual HRA received from your employer
- Rent paid minus 10% of salary (Basic + DA)
- 50% of salary if you live in Delhi, Mumbai, Kolkata or Chennai; 40% of salary in any other city
Example: Basic salary ₹50,000 per month, HRA ₹20,000 per month, rent ₹15,000 per month in Mumbai. Yearly: HRA received ₹2,40,000; rent minus 10% of salary = ₹1,80,000 − ₹60,000 = ₹1,20,000; 50% of salary = ₹3,00,000. The exemption is ₹1,20,000 and the remaining ₹1,20,000 of HRA is taxable.
Conditions to claim HRA exemption
- You must actually pay rent for the house you live in. HRA for a house you own is fully taxable.
- HRA exemption is available only in the old tax regime. If you opt for the new regime, the full HRA is taxed.
- If rent exceeds ₹1 lakh per year, you must give your landlord’s PAN to your employer.
- Rent paid to parents is allowed if you have a genuine rent agreement and they show the rent as income in their return.
- Keep rent receipts or bank transfer proof. Employers ask for them in January to March.
Metro vs non-metro for HRA
For HRA purposes, only Delhi, Mumbai, Kolkata and Chennai are metro cities, where 50% of salary is the limit. Bengaluru, Hyderabad, Pune, Ahmedabad, Gurugram and Noida are treated as non-metro cities with a 40% limit, even though rents there are high.
No HRA in your salary? Use Section 80GG
Self-employed people and salaried employees who do not get HRA can claim a deduction for rent under Section 80GG. The deduction is the lowest of ₹5,000 per month, 25% of total income, or rent minus 10% of income. You should not own a house in the city where you live.
Frequently asked questions
Can I claim HRA and home loan interest together?
Yes, if you live in a rented house in one city and your own house is in another city or is let out. Both benefits can be claimed in the old regime.
Is HRA exemption available in the new tax regime?
No. The new regime removes most exemptions including HRA. Compare both regimes with our income tax calculator before choosing.
What if I changed cities during the year?
Calculate the exemption separately for each period: the months in a metro city with the 50% limit and the months in a non-metro city with the 40% limit, then add them up.
Do I need a rent agreement to claim HRA?
Rent receipts are usually enough for small amounts. For rent above ₹1 lakh a year employers ask for the landlord’s PAN, and a rent agreement is strongly recommended as proof.
Can I claim HRA if my employer did not consider it?
Yes. You can claim the exemption yourself while filing your income tax return and get a refund of the extra TDS.
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