Your HRA exemption is the least of three amounts, and it is available only under the old tax regime. Take the smallest of: the HRA you actually received, 50% of salary if you live in a metro or 40% if you do not, and the rent you paid minus 10% of salary.
The third limb is the one that catches people. If your rent is less than 10% of salary, the exemption is nil however large your HRA is.
How is the HRA exemption calculated?
| Limb | What it is | Applies to | Source |
|---|---|---|---|
| 1 | Actual HRA received in the year | Everyone claiming | Section 10(13A), Rule 2A |
| 2 | 50% of salary | Delhi, Mumbai, Kolkata and Chennai | Rule 2A |
| 2 | 40% of salary | Every other city | Rule 2A |
| 3 | Rent paid minus 10% of salary | Everyone claiming | Rule 2A |
| Exemption | The least of the three | Old regime only | Section 10(13A) |
| Salary, for this rule | Basic pay, dearness allowance forming part of pay, and commission on turnover | The base for limbs 2 and 3 | Rule 2A |
| Landlord PAN | Required where annual rent exceeds ₹1,00,000 | Declared to the employer in Form 12BB | CBDT Circular 1/2019 |
| No HRA received | Section 80GG, capped at ₹60,000 a year | Old regime, conditions apply | Section 80GG |
Rules as of 6 September 2026. Salary for this calculation is not your CTC and not your gross pay. Getting that base wrong is the most common error on the claim.
A worked example
Take a salaried employee in Pune. Basic pay is ₹8,00,000 a year. HRA received is ₹3,20,000. Rent paid is ₹2,40,000 for the year. There is no dearness allowance.
Limb one is ₹3,20,000, the HRA received. Limb two is 40% of ₹8,00,000, which is ₹3,20,000, because Pune is not a metro for this rule. Limb three is ₹2,40,000 minus 10% of ₹8,00,000, which is ₹2,40,000 minus ₹80,000, or ₹1,60,000.
The exemption is the least, so ₹1,60,000. The remaining ₹1,60,000 of HRA is taxable. Run your own numbers on the HRA calculator rather than trusting a payroll estimate.
Which cities count as metro?
Only four. Delhi, Mumbai, Kolkata and Chennai get 50% of salary. Everywhere else gets 40%.
Bengaluru, Hyderabad, Pune, Ahmedabad and Gurugram do not qualify, however expensive they are. This is a fixed statutory list and it has not moved with the property market. Employers sometimes apply 50% to Bengaluru by mistake, and the correction lands on the employee at assessment.
The city that matters is where the rented home is, not where the office is. If you rent in Noida and work in Delhi, the 40% rate applies.
Can I claim HRA on rent paid to my parents?
Yes, and it is legitimate if it is real. You must not own the property you live in, you must actually pay the rent, and your parents must declare that rent as income in their own returns.
Do it properly. Transfer the rent by bank, every month, on a fixed date. Have a written agreement. Take the landlord’s PAN if annual rent exceeds ₹1,00,000, and put it in Form 12BB. Cash payments with a backdated receipt in March are the pattern the department looks for.
There is a genuine tax benefit here when parents are in a lower bracket, or are senior citizens with a higher basic exemption under the old regime. There is no benefit at all if the arrangement is fictional, because the exemption gets disallowed with interest. A proper rent agreement is the cheapest protection you can buy.
Should you stay in the old regime just for HRA?
Only if the arithmetic says so. The new regime is the default and it does not allow HRA at all. It offers a ₹75,000 standard deduction and a rebate that makes income up to ₹12,00,000 effectively tax-free.
So the question is not whether HRA is valuable. It is whether HRA plus your other old-regime deductions beat the new regime’s lower rates. For a renter in a metro with a large HRA and a home loan, the old regime often still wins. For someone with a small HRA and no other deductions, it usually does not.
Compute it both ways before you choose. Use the old versus new regime calculator, and factor in home loan tax benefits if you have a loan.
Frequently asked questions
Can I claim HRA under the new tax regime?
No. The exemption under section 10(13A) is not available in the new regime, which is the default. You must actively opt into the old regime to claim it. Compare the two outcomes before you decide, because the new regime’s lower rates can beat the exemption.
Do I need my landlord’s PAN?
Yes, if the rent for the year exceeds ₹1,00,000. You declare it to your employer in Form 12BB, per CBDT Circular 1/2019. If the landlord has no PAN, you need a declaration from the landlord with their name and address instead.
Can I claim HRA and a home loan deduction together?
Yes, and it is common. You can rent in the city you work in and own a house elsewhere, or one that is let out. What you cannot do is claim HRA for a house you live in and own. Keep the two properties and their documentation clearly separate.
What if my employer does not pay HRA at all?
Then section 10(13A) does not apply, but section 80GG might. It allows a deduction for rent paid where no HRA is received, capped at ₹60,000 a year, under the old regime and subject to conditions. It is far smaller than a normal HRA exemption.
Sources
- Section 10(13A) and Rule 2A, house rent allowance — Income Tax Department, incometaxindia.gov.in.
- Landlord PAN requirement where annual rent exceeds ₹1,00,000, and Form 12BB — CBDT Circular 1/2019, incometaxindia.gov.in.
- Section 80GG limit and regime availability — our tax dataset dated 17 August 2026, sourced from incometax.gov.in.
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