How HRA Exemption Is Calculated: Formula, Metro Rules & Calculator
By Pradipta Ray · Published
House Rent Allowance (HRA) is one of the most valuable tax deductions for salaried tenants in India under the Old Tax Regime. Here is the exact mathematical rule used to calculate your tax-exempt rent allowance.
HRA exemption is not simply the rent you pay or the HRA your employer gives you. The Income Tax Department enforces a three-condition statutory formula, and your exemption is strictly capped by the lowest of the three amounts.
Direct Answer: HRA exemption equals the lowest of: 1) Actual HRA received from employer, 2) Rent paid minus 10% of basic salary, or 3) 50% of basic salary (metro cities: Mumbai, Delhi, Kolkata, Chennai) or 40% (non-metro).
Worked Example: HRA Calculation for Salaried Employee
| Statutory Condition | Rule 2A Formula | Calculated Monthly Amount |
|---|---|---|
| Condition 1 | Actual HRA received from employer | ₹25,000 |
| Condition 2 | Rent paid (₹22,000) minus 10% of Basic (₹6,000) | ₹16,000 |
| Condition 3 | 50% of Basic salary (Metro city: Delhi) | ₹30,000 |
| Exempt HRA | Minimum of Condition 1, 2, and 3 | ₹16,000 per month (₹1.92L/yr) |
| Taxable HRA | Actual HRA (₹25,000) minus Exempt HRA (₹16,000) | ₹9,000 per month (₹1.08L/yr) |
Metro vs Non-Metro Classification Rules
Under Rule 2A, only four cities qualify for the 50% basic salary cap: New Delhi, Mumbai, Kolkata, and Chennai. Major tech hubs like Bengaluru, Hyderabad, Pune, Gurugram, and Noida are classified as non-metros for HRA purposes and are subject to the 40% limit. However, Condition 2 (Rent minus 10% Basic) is almost always the limiting factor for most employees.
Crucial HRA Compliance Requirements
Obtain valid rent receipts with revenue stamps and landlord signature for audit trail.
Collect your landlord's PAN if annual rent exceeds ₹1,00,000; failure to provide PAN results in employer denying exemption.
Ensure rent is paid through bank transfer (UPI, NEFT, IMPS) rather than cash to withstand scrutiny during income tax assessments.
Frequently asked questions
What is the formula for HRA tax exemption?
Can I claim HRA under the New Tax Regime?
When is landlord PAN mandatory for HRA?
Calculators for this
Related reading
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Calculate income tax on a ₹10 Lakh salary in India for AY 2026-27. Compare New vs Old Regime, standard deduction, and see which option saves you more money.
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Authoritative Sources
- Income Tax Department Section 10(13A) and Rule 2A· verified 1 August 2026
- CBDT Circular on Tax Deduction from Salaries· verified 1 August 2026