How is HRA Exemption Calculated?
House Rent Allowance (HRA) is a component of your salary that helps cover the cost of rented accommodation. Under Section 10(13A) of the Income Tax Act, a part of the HRA you receive is exempt from tax, provided you actually pay rent. The exempt amount is the lowest of three values: (1) Actual HRA received from your employer, (2) 50% of your Basic salary if you live in a metro city (Delhi, Mumbai, Chennai, or Kolkata) or 40% for non-metro cities, and (3) Rent paid minus 10% of your Basic salary.
The HRA exemption applies only if you are a salaried individual paying rent for accommodation. Self-employed individuals and those who live in their own home are not eligible for this exemption. If your annual rent exceeds ₹1 lakh, you must provide your landlord's PAN to claim the exemption.
Under the new tax regime introduced in Budget 2023, HRA exemption is not available — it is applicable only under the old (existing) tax regime. If you are evaluating which regime to opt into, compare the tax impact with and without HRA exemption based on your actual rent and salary.
Worked example: ₹40,000 basic + DA, metro city
Suppose your Basic salary + Dearness Allowance (DA) is ₹40,000/month, your employer pays you ₹18,000/month as HRA, you pay ₹15,000/month in rent, and you live in a metro city (so the 50% slab applies). Section 10(13A) requires you to compute all three values below and take the lowest one as your exempt HRA.
| Component (Section 10(13A)) | Calculation | Amount / month |
|---|---|---|
| (a) Actual HRA received | Paid by employer | ₹18,000 |
| (b) Rent paid − 10% of basic+DA | ₹15,000 − (10% × ₹40,000 = ₹4,000) | ₹11,000 (lowest) |
| (c) 50% of basic+DA (metro) | 50% × ₹40,000 | ₹20,000 |
The least of the three is ₹11,000 (rent paid minus 10% of basic+DA), so that is your exempt HRA. The remaining ₹7,000/month (₹18,000 received − ₹11,000 exempt) is taxable HRA, added to your income and taxed at your slab rate — ₹84,000 over a full year. Had you lived in a non-metro city instead, the 40% figure (₹16,000) would still be higher than ₹11,000, so the exempt amount and the answer would not change in this particular example.
If you don't pay any rent — for example, you live with your parents rent-free or in employer-provided accommodation without a lease — none of the three conditions above can be satisfied, and your entire HRA becomes fully taxable as part of your salary income.
Paying rent to a parent or family member is allowed, but it is scrutinised closely: you need a genuine rent agreement, monthly rent receipts, and payment through a traceable bank transfer (not cash) to substantiate the claim. Your family member must also declare that rent as their own rental income when filing their return. As with any landlord, if the annual rent paid exceeds ₹1,00,000, you must collect their PAN and mention it in your HRA claim to your employer.
Frequently Asked Questions
What are the three conditions for HRA exemption?
The HRA exemption is the minimum of three values: (1) Actual HRA received from your employer, (2) 50% of basic salary for metro cities (Delhi, Mumbai, Chennai, Kolkata) or 40% for non-metro cities, and (3) Actual rent paid minus 10% of basic salary. The lowest of these three is your tax-exempt HRA.
Can I claim HRA if I live in my own house?
No. HRA exemption is available only when you actually pay rent for accommodation. If you own and live in your home, you cannot claim HRA exemption. However, if you own a house in one city but rent a place in another city (due to work), you can claim both HRA exemption and home loan deductions simultaneously.
Is HRA available under the new tax regime?
No. HRA exemption under Section 10(13A) is available only under the old tax regime. If you opt for the new tax regime, you cannot claim HRA exemption. When deciding between tax regimes, factor in whether your HRA saves more than the lower slab rates offered in the new regime.
Do I need to submit rent receipts to claim HRA?
Employers typically require rent receipts and a rental agreement as proof to approve HRA exemption. If your annual rent exceeds ₹1 lakh (₹8,333/month), you must also provide your landlord's PAN. Without PAN, TDS at 30% must be deducted and deposited on the rental amount.
Related Calculators
This calculator is for educational purposes only and covers the standard HRA exemption formula under the old tax regime. Individual tax outcomes may vary. Consult a qualified tax adviser for personalised advice.