HRA exemption rules with examples
HRA is partly tax-free under the old regime. The three-limb formula, which cities count as metro, paying rent to parents, the landlord PAN rule and when HRA justifies the old regime.
3 min read · Published 2026-10-31 · Last reviewed 2026-10-31
House rent allowance is the one salary component that can make the old tax regime worth choosing. For a renter in Mumbai or Bengaluru it is often worth more than every other deduction combined. The rules are mechanical once you know the formula, but the details around metros, parents and PAN cause most of the problems. This guide covers all of them.
Who can claim
You must receive HRA as part of salary, actually pay rent, and live in the rented house. Owning a house in another city does not disqualify you. Living in your own house and paying no rent does. Self-employed people cannot claim HRA; they have a separate deduction for rent paid, capped at ₹5,000 a month.
HRA exemption exists only under the old regime. Under the new regime your HRA is fully taxable, whatever rent you pay.
The formula
The exempt amount is the least of three figures, computed for the year (or for each period if your salary, rent or city changed):
- Actual HRA received.
- Rent paid minus 10% of salary.
- 50% of salary if you live in Delhi, Mumbai, Kolkata or Chennai; 40% anywhere else.
Salary here means basic pay plus dearness allowance (if it counts for retirement benefits) plus any commission on turnover. It does not include special allowance or bonus.
Whatever is left of your HRA after the exempt part is taxable.
Example one: Mumbai
Basic ₹6 lakh, HRA ₹2.4 lakh, rent ₹3 lakh a year.
- HRA received: ₹2,40,000.
- Rent − 10% of basic: ₹3,00,000 − ₹60,000 = ₹2,40,000.
- 50% of basic: ₹3,00,000.
Least is ₹2.4 lakh, so the entire HRA is exempt and nothing is taxed. The structure is well matched to the rent.
Example two: Bengaluru
Same salary, rent ₹4 lakh a year, but HRA ₹3 lakh.
- HRA received: ₹3,00,000.
- Rent − 10% of basic: ₹4,00,000 − ₹60,000 = ₹3,40,000.
- 40% of basic: ₹2,40,000.
Least is ₹2.4 lakh, so ₹60,000 of HRA is taxable. Bengaluru, Hyderabad, Pune and Gurugram are not metros for HRA purposes despite their rents; the 40% limb bites.
The metro list is fixed
Only Delhi, Mumbai, Kolkata and Chennai count as metros. Suburbs within those municipal areas count too (Navi Mumbai and Thane are debated; most employers treat Navi Mumbai as non-metro). Everywhere else is 40%. This is the single most common reason a Bengaluru renter's exemption is lower than expected.
Paying rent to parents or spouse
Rent paid to parents is allowed if it is genuine: the house is in their name, you actually transfer the money, they show it as rental income in their return, and ideally there is a rent agreement. Parents in a lower tax bracket make this an efficient family arrangement because they can also claim the 30% standard deduction on rental income.
Rent paid to a spouse is treated with far more suspicion because spouses are assumed to share a household. Courts have allowed it in specific cases, but expect scrutiny and keep the arrangement commercial.
Documents
- Rent receipts (a revenue stamp is required for cash payments above ₹5,000, not for bank transfers).
- Rent agreement.
- Landlord's PAN if annual rent exceeds ₹1 lakh. If the landlord has no PAN, a signed declaration to that effect.
- If annual rent exceeds ₹6 lakh (₹50,000 a month), you must deduct 2% TDS on the rent under the tenant TDS provision and deposit it once a year.
Submit these to your employer by the investment-proof deadline so TDS on salary reflects the exemption; otherwise claim it in your return and wait for a refund.
HRA plus home loan interest
You can claim both if you live in a rented house and own a house elsewhere, or own a house in the same city but cannot live in it for a genuine reason such as distance from work. Both claims must be real; the department does ask for the reason.
When HRA tips the balance toward the old regime
Roughly, the old regime starts to win when total deductions exceed ₹5.5 lakh at a ₹15 lakh salary, rising to ₹8 lakh at ₹25 lakh and above. A Mumbai renter with ₹2.4 lakh HRA exemption, ₹1.5 lakh under 80C, ₹50,000 under 80D and ₹2 lakh of home loan interest reaches ₹6.4 lakh and should check carefully. A renter with HRA exemption alone almost never does.
Work out your exemption with the HRA calculator, then plug it into the income tax calculator to compare regimes.
Sources
This guide is general information, not financial, tax or legal advice. Rules change; the review date above tells you when it was last checked. See our editorial policy.