House Rent Allowance (HRA) is one of the most valuable tax exemptions available to salaried employees in India — yet it's also one of the most misunderstood. This guide explains exactly how HRA exemption is calculated, who can claim it, and walks through real examples for both metro and non-metro cities.
What is HRA?
HRA is a component of your salary that your employer pays to help cover the cost of renting a home. Under Section 10(13A) of the Income Tax Act, part of this allowance can be exempt from income tax, reducing your taxable salary. It is one of the biggest reasons many people still prefer the old tax regime.
Who can claim HRA exemption?
- You must be a salaried employee who actually receives HRA as part of your salary.
- You must live in rented accommodation and genuinely pay rent.
- You must file your return under the old tax regime — HRA exemption is not available under the new regime.
If you are self-employed or don't receive HRA, you may instead be able to claim a deduction for rent under Section 80GG, which has its own separate limits.
The HRA exemption formula
Your exempt HRA is the least of these three amounts:
- The actual HRA received from your employer
- Rent paid − 10% of basic salary (basic + dearness allowance)
- 50% of basic salary if you live in a metro city, or 40% if you live in a non-metro city
Whichever of these three is smallest becomes your tax-exempt HRA. The remainder of your HRA is added to your taxable income.
Which cities count as "metro"?
For HRA purposes, only four cities are currently treated as metros, qualifying for the higher 50% limit: Delhi, Mumbai, Kolkata and Chennai. Every other city — including Bengaluru, Hyderabad, Pune and Ahmedabad — is treated as non-metro at 40%.
Heads up: Budget proposals indicate the 50% metro benefit is set to be extended to additional cities (Hyderabad, Pune, Ahmedabad and Bengaluru) from FY 2026-27 onwards. Always confirm the rule for the year you are filing.
Example 1 — Metro city (Mumbai)
Suppose your monthly basic salary is ₹45,000, you receive HRA of ₹20,000 per month, and you pay rent of ₹25,000 per month in Mumbai.
| Component (annual) | Amount |
|---|---|
| Actual HRA received | ₹2,40,000 |
| Rent paid − 10% of basic (₹3,00,000 − ₹54,000) | ₹2,46,000 |
| 50% of basic (metro) | ₹2,70,000 |
The least of the three is ₹2,40,000, so your entire HRA is exempt in this case.
Example 2 — Non-metro city
Same salary, but you live in a non-metro city and pay ₹15,000 rent per month.
| Component (annual) | Amount |
|---|---|
| Actual HRA received | ₹2,40,000 |
| Rent paid − 10% of basic (₹1,80,000 − ₹54,000) | ₹1,26,000 |
| 40% of basic (non-metro) | ₹2,16,000 |
Here the least amount is ₹1,26,000, so only that much HRA is exempt and the balance (₹1,14,000) is taxable.
Documents and the landlord PAN rule
Keep rent receipts and your rent agreement. If your annual rent exceeds ₹1,00,000, you must report your landlord's PAN to your employer or in your return.
Disclaimer: Tax rules, city classifications and limits can change each financial year in the Union Budget. Verify against the latest Income Tax Department rules before filing.