How HRA exemption is calculated
The exempt part of your HRA is the lowest of:
- the HRA your employer actually pays you;
- rent paid minus 10% of salary;
- 50% of salary if you live in a metro city, 40% otherwise.
"Salary" here means basic pay plus dearness allowance (if it counts for retirement benefits), plus any commission fixed as a percentage of turnover. It doesn't include HRA or other allowances. The calculation uses the months for which you received HRA and paid rent.
Worked example
Basic salary ₹50,000 a month, HRA ₹20,000, rent ₹25,000, living in Bengaluru in FY 2026-27:
| Limit | Monthly |
|---|---|
| Actual HRA | ₹20,000 |
| Rent − 10% of salary (25,000 − 5,000) | ₹20,000 |
| 50% of salary (Bengaluru is a metro from FY 2026-27) | ₹25,000 |
| Exempt HRA (lowest) | ₹20,000 |
The whole HRA is tax-free: ₹2,40,000 a year. With a rent of ₹22,000, the exemption would drop to ₹17,000 a month, and ₹3,000 a month would be taxable.
Which cities count as metros?
| Tax year | 50% of salary | 40% of salary |
|---|---|---|
| FY 2026-27 onwards | Delhi, Mumbai, Kolkata, Chennai, Bengaluru, Hyderabad, Pune, Ahmedabad | All other cities (including Gurugram and Noida) |
| FY 2025-26 and earlier | Delhi, Mumbai, Kolkata, Chennai | All other cities |
The four new cities were added by the Income-tax Rules 2026, notified on 20 March 2026, which apply from 1 April 2026.
Rules to remember
- Old regime only. The new tax regime doesn't allow HRA exemption. If you've chosen the new regime, your full HRA is taxable, and the new regime may still be cheaper overall.
- Landlord's PAN. If your rent is more than ₹1 lakh a year, your employer will ask for your landlord's PAN.
- Rent receipts. Keep receipts or a rental agreement as proof. The receipt generator makes rent receipts in a minute.
- Paying rent to parents is allowed if they own the house and declare the rent as income. Paying rent to a spouse is generally not accepted.
- No HRA in your salary? Self-employed people and employees without HRA may be able to claim section 80GG instead (old regime). It has its own limits.
Frequently asked questions
Is Bengaluru a metro city for HRA?
Can I claim HRA under the new tax regime?
What counts as salary for HRA?
Can I claim HRA if I pay rent to my parents?
Do I need rent receipts?
Last updated . How we check our tools. Sources: Income-tax Rules 2026 (notified 20 Mar 2026; KPMG summary); Income-tax Rules 1962, Rule 2A; incometax.gov.in.