HRA Exemption Calculation with Example — FY 2025-26

House Rent Allowance (HRA) is one of the most valuable tax exemptions for salaried employees. If you pay rent and receive HRA from your employer, you can claim a significant exemption under the old tax regime. Here is the complete calculation with examples.

The HRA Exemption Formula

HRA exemption = Minimum of these 3 conditions:

1. Actual HRA received from employer (annual)
2. Rent paid − 10% of basic salary (annual) — floor is zero
3. 50% of basic salary (metro cities) OR 40% of basic salary (non-metro cities)

The lowest of these three amounts is your HRA exemption.

Metro Cities — Updated List (FY 2026-27)

From April 1, 2026 (Income Tax Rules 2026), the metro city list for HRA has expanded from 4 to 8 cities:

50% of basic salary: Delhi, Mumbai, Chennai, Kolkata, Bengaluru, Hyderabad, Pune, Ahmedabad

40% of basic salary: All other cities (Jaipur, Lucknow, Kochi, Chandigarh, etc.)

This is a significant change — employees in Bengaluru, Hyderabad, Pune, and Ahmedabad now get a higher HRA exemption.

Worked Example — Bengaluru Employee

Monthly figures:

• Basic salary: ₹50,000/month
• HRA received: ₹20,000/month
• Rent paid: ₹18,000/month
• City: Bengaluru (metro from FY 2026-27)

Annual figures:

• Basic: ₹6,00,000
• HRA received: ₹2,40,000
• Rent paid: ₹2,16,000

Calculate 3 conditions:

HRA exemption = Minimum = ₹1,56,000 (Condition 2 is lowest)

Taxable HRA = ₹2,40,000 − ₹1,56,000 = ₹84,000

Worked Example — Non-Metro City (Jaipur)

Monthly figures:

• Basic: ₹40,000/month
• HRA received: ₹15,000/month
• Rent paid: ₹12,000/month
• City: Jaipur (non-metro)

Annual figures:

• Basic: ₹4,80,000
• HRA received: ₹1,80,000
• Rent paid: ₹1,44,000

Calculate 3 conditions:

HRA exemption = Minimum = ₹96,000 (Condition 2 is lowest)

When HRA Exemption is Zero

HRA exemption becomes zero when:

• You don't pay rent (living in own house or with parents without paying rent)
• Rent paid is less than 10% of basic salary — Condition 2 becomes zero or negative
• You choose the new tax regime — HRA is fully taxable

Important Rules

• Landlord PAN required if annual rent exceeds ₹1,00,000 (₹8,333/month)
• Rent receipts must be maintained for the entire year
• You can claim HRA even if you pay rent to parents — but the rent must be genuine and parents must declare it as income
• HRA is available only under the old tax regime

HRA vs Home Loan — Can You Claim Both?

Yes, in some cases. If you:

• Own a house in City A (where you have a home loan)
• Live on rent in City B (where you work)

You can claim both HRA exemption (for rent in City B) and home loan interest deduction under Section 24(b) (for the house in City A).

Use the free HRA Exemption Calculator to calculate your exact exemption with the updated 8-city metro list.

Frequently Asked Questions

Which cities are metro for HRA in FY 2026-27?

Eight cities: Delhi, Mumbai, Chennai, Kolkata, Bengaluru, Hyderabad, Pune, and Ahmedabad. All get 50% of basic salary as the HRA ceiling.

Can I claim HRA if I live in my own house?

No. HRA exemption requires you to actually pay rent. If you live in your own house, no HRA exemption is available.

What if my employer doesn't give HRA?

If your employer doesn't provide HRA as a salary component, you cannot claim HRA exemption. However, you may be able to claim deduction under Section 80GG (for those who don't receive HRA).

Is HRA available in the new tax regime?

No. HRA exemption is available only under the old tax regime. Under the new regime, the entire HRA received is taxable.

Do I need to submit rent receipts to my employer?

Yes. Your employer will ask for rent receipts (usually quarterly or annually) to calculate TDS correctly. Keep all receipts.

---

Need help calculating your HRA exemption and filing ITR? I handle both old and new regime comparison — message me on WhatsApp.