How HRA exemption is calculated
House Rent Allowance (HRA) is a common part of salary for employees who don't live in employer-provided housing. Under Section 10(13A) of the Income Tax Act, read with Rule 2A, part of the HRA you receive can be exempt from tax if you actually pay rent for a house you live in. The exempt amount is the least of three rules, worked out above:
- Rule 1: the actual HRA you receive from your employer
- Rule 2: rent paid minus 10% of (basic salary + DA that counts for retirement benefits)
- Rule 3: 50% of (basic + DA) if you live in a metro city, or 40% if you don't
Whichever of the three is the smallest becomes your exempt HRA; the rest of the HRA you received is added back to your taxable salary. If you pay little or no rent, rule 2 will usually be the smallest — sometimes even zero — regardless of how much HRA your employer pays you.
Why only four cities count as "metro"
Rule 2A defines "metro" narrowly, for HRA purposes only: Delhi, Mumbai, Kolkata and Chennai. This is a fixed, statutory list that hasn't changed in decades — it has nothing to do with a city's actual population or cost of living today. That means high-cost, high-rent cities like Bengaluru, Pune, Hyderabad, Gurgaon and Noida are all treated as non-metro, capping rule 3 at 40% of basic instead of 50%, even though rents there can rival or exceed those in the four statutory metros.
HRA exemption is not available under the new tax regime
This is worth calling out clearly: if you opt for the new tax regime, you cannot claim HRA exemption at all — the entire HRA component of your salary is fully taxable, no matter how much rent you actually pay. HRA exemption under Section 10(13A) is one of several deductions (along with 80C, 80D, and most others) that only exist under the old regime. If you pay substantial rent, this is one of the main reasons the old regime can still work out cheaper for you even though its slab rates are higher — always compare both regimes before you commit for the year.
Documents you'll need
To claim HRA exemption through your employer (or while filing your return), keep these ready:
- Monthly rent receipts (see our rent receipt generator) or a signed rent agreement
- Landlord's PAN, mandatory if your annual rent exceeds ₹1,00,000
- Proof of payment — bank transfer or UPI statements are strongly preferred over cash
- A declaration to your employer at the start of the year, and actual proof during the January proof-submission window
If you don't receive an HRA component in your salary at all, you may still be able to claim a smaller rent-related deduction under Section 80GG — see the FAQ below.