How the HRA exemption is calculated

The exemption is the lowest of three numbers

House rent allowance is the part of salary paid because you rent a house. It is not exempt just because it is labelled HRA. In the Income-tax Act, 2025 the exemption is Schedule III, table item 11. Before 1 April 2026 it was section 10(13A). The amount is worked out under Rule 279 of the Income-tax Rules, 2026. That was Rule 2A.

You get the lowest of these three:

1. The HRA you actually received for the period.
2. Rent paid for that period, minus 10% of salary.
3. 50% of salary if the house is in a named city, or 40% of salary anywhere else.

Salary here is basic pay plus dearness allowance. Use monthly figures for all three, or yearly figures for all three. Do not mix a monthly rent with a yearly basic.

The new regime does not allow this exemption. Section 202(2)(a)(i) leaves out Schedule III, table item 11. If you opt for section 202, type zero for HRA on the income tax calculator. The old regime can still use the exempt part. The HRA calculator does only this sum. It does not decide the regime for you.

You have to have paid rent for a house you occupy and do not own. Paying rent to a close relative can still be real, but the form asks you to say so. A house you own does not produce this exemption.

The eight cities, and everywhere else

Rule 279 of the Income-tax Rules, 2026 uses 50% of salary for Mumbai, Kolkata, Delhi, Chennai, Hyderabad, Pune, Ahmedabad and Bengaluru. Every other place uses 40%. The list is wider than the old “metro” habit of four cities. Hyderabad, Pune, Ahmedabad and Bengaluru are on the 50% list.

The city is the place where the rented house is. If you work in Mumbai and rent in Thane, Thane is not one of the eight names, so the 40% test is the one to use unless the house itself is in Mumbai.

When rent minus 10% is the one that binds

Take a year. Basic pay ₹6,00,000. No dearness allowance. HRA received ₹2,40,000. Rent paid ₹2,40,000. The house is in Bengaluru, so the third test is 50% of salary, which is ₹3,00,000.

Rent minus 10% of salary is ₹2,40,000 minus ₹60,000, which is ₹1,80,000.

The three amounts are ₹2,40,000, ₹1,80,000 and ₹3,00,000. The lowest is ₹1,80,000. That is the exemption. The remaining HRA, ₹60,000, is taxable salary.

The 50% test never got a chance to matter. Rent minus 10% was already lower. In a cheaper city the 40% test would have been ₹2,40,000, which is still above ₹1,80,000. Same exemption. People often argue about metro and non-metro when the rent line has already decided the answer.

When the city does change the exemption

Same salary, ₹6,00,000 basic and no dearness allowance. HRA received is now ₹3,60,000. Rent paid is ₹3,60,000.

Rent minus 10% of salary is ₹3,60,000 minus ₹60,000, which is ₹3,00,000.

In Mumbai the 50% test is ₹3,00,000. The three amounts are ₹3,60,000, ₹3,00,000 and ₹3,00,000. The exemption is ₹3,00,000.

In a city that is not on the list, the 40% test is ₹2,40,000. The three amounts are ₹3,60,000, ₹3,00,000 and ₹2,40,000. The exemption is ₹2,40,000.

The city is worth ₹60,000 of exemption in this example, and nothing in the earlier one. Run both in the calculator before you assume a move across a city line will change the tax.

Dearness allowance is part of salary

Salary is basic plus dearness allowance, not basic alone. Take basic ₹4,80,000 and dearness allowance ₹1,20,000. Salary for the test is ₹6,00,000. HRA ₹3,60,000 and rent ₹3,60,000, in Pune.

Ten percent of salary is now ₹60,000 still, because salary is still ₹6,00,000. Rent minus that 10% is ₹3,00,000. Half of salary is ₹3,00,000. The exemption is ₹3,00,000.

If the dearness allowance had been left out, 10% and 50% would have been worked on ₹4,80,000 only, and both the rent line and the city line would be wrong. Put the dearness allowance in the calculator even when it feels like a small line on the payslip. A special allowance that is not dearness allowance does not go into this salary.

Rent receipts, the agreement, and the landlord’s PAN

The three-way test is the maths. The papers are what the employer, and later the department, can ask to see. The Income Tax Department’s Form 124 FAQs point to the rent agreement as the support for the claim. Keep the agreement and the proof that the rent was paid: receipts, or the bank trail if the rent went by transfer.

Form 124 was Form 12BB. Rule 205 was Rule 26C. You give the form to the employer so tax is deducted on the taxable part of HRA, not on the whole allowance.

If the rent during the tax year adds up to more than ₹1,00,000, the form asks for the landlord’s name, address and PAN, and your relationship with the landlord if there is one. Both examples on this page have yearly rent above ₹1,00,000, so the PAN line applies. A landlord who will not share a PAN does not change the three-way maths, but the employer can refuse the exemption in the monthly tax, and you would then be claiming it only in the return, with the same gap in the papers.

Rent paid to a parent or a spouse is the case the relationship line is for. The rent still has to be paid, and the house still has to be one you do not own. A circular transfer that comes back to you is not rent.

Split the year if you moved. The exemption is for the period the rent and the HRA overlap. A month with HRA and no rent contributes nothing to the second test. A month of rent before you joined, with no HRA, does not create an exemption either. Add the months that match, then run the three tests on those totals.

Putting the exemption into the regime choice

The exempt amount is an old-regime deduction. It sits beside section 123, section 126 and home-loan interest when you compare regimes. It is not part of the ₹1.5 lakh section 123 cap. A large rent exemption is often the reason the old regime wins for a salaried renter, once the salary is high enough that the capped deductions are not enough on their own.

The old vs new guide has the breakeven deduction for salaries from ₹7 lakh to ₹30 lakh. From ₹12 lakh upwards, that hurdle is more than the ₹5 lakh you can get from the capped sections alone. HRA is one of the few amounts that can cover the rest. Type the exemption from this calculator into the HRA box on the regime calculator. Do not also type it inside the section 123 box.

The new regime ignores the exemption. If the new regime is still cheaper after you have typed a true HRA figure, claiming HRA does not change that. You do not keep the exemption and the new slabs together.

Employer NPS and the standard deduction are separate from HRA. The standard deduction is ₹75,000 or ₹50,000 depending on the regime, and it does not depend on rent. Do not subtract rent from salary and then also expect the standard deduction to shrink.

What this calculation does not do

It does not value a rent-free house, and it does not work out section 134, which was section 80GG, for someone who pays rent and does not receive HRA. Section 134 has its own limits, including a monthly cap, and it is not available when Schedule III item 11 already applies.

It does not split rent between two people. If you share a flat, use only the rent you paid and only the HRA you received.

It rounds each of the three tests to the nearest rupee and then takes the lowest. That matches the HRA calculator. A difference of a rupee against a hand calculation is that rounding, not a second set of rules.

Figures were checked on 28 October 2026. The city list follows Rule 279 as summarised from G.S.R. 198(E). If a later notification changes a city, the calculator page is the place that will move, and this guide should be read with it.