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.
Which cities count as "metro" — and a rule change from FY 2026-27
For decades, Rule 2A defined "metro" narrowly for HRA purposes as just Delhi, Mumbai, Kolkata and Chennai — a fixed, statutory list unrelated to a city's actual population or cost of living. High-rent cities like Bengaluru, Pune, Hyderabad, Gurgaon and Noida were 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.
This is changing. Under Rule 279 of the Income-tax Rules, 2026 (replacing Rule 2A of the 1962 Rules), effective 1 April 2026 (FY 2026-27), Bengaluru, Hyderabad, Pune and Ahmedabad join the 50%-cap metro list alongside Mumbai, Delhi, Kolkata and Chennai. This applies only under the old tax regime (HRA exemption doesn't exist under the new regime either way), and it takes effect for FY 2026-27 onward — the ITR you file in July 2026 is for FY 2025-26, which still uses the old four-city, 40%-for-everyone-else rule. If you live in one of these four newly added cities, the extra 10 percentage points on rule 3 only starts benefiting you from the financial year beginning 1 April 2026.
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.
HRA exemption by city
Check a specific city's metro status and a worked example: Delhi, Mumbai, Kolkata, Chennai, Bengaluru, Hyderabad, Pune, Ahmedabad, Gurgaon, Noida.
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.