House Rent Allowance exemption is the most commonly miscalculated deduction on an Indian tax return. Most people assume the exemption equals the HRA figure on their payslip. It almost never does.
The exempt amount is the lowest of three separate calculations, and this calculator runs all three so you can see which one is capping your claim.
The three-way test
Section 10(13A) exempts the least of the following three amounts. Whichever is smallest is your exemption — the other two are irrelevant to the final number, however large they are.
Exemption = MIN( HRA received, Rent paid − 10% of salary, 50% or 40% of salary )
- ·Salary here means Basic + Dearness Allowance (+ commission on turnover, if part of your terms)
- ·50% applies if you live in Delhi, Mumbai, Kolkata or Chennai
- ·40% applies everywhere else, including Bengaluru, Hyderabad, Pune and Gurugram
- ·It is your place of residence that matters, not where your employer is registered
Only four cities count as metro
For HRA purposes the metro list is Delhi, Mumbai, Kolkata and Chennai — and nowhere else. Bengaluru, Hyderabad, Pune, Ahmedabad and Gurugram are all non-metro at 40%, regardless of how expensive they have become. Claiming 50% in Bengaluru is one of the most frequent errors in HRA computation.
A worked example
Take a basic salary of ₹6,00,000 a year, HRA of ₹3,00,000, and rent paid of ₹2,40,000 (₹20,000 a month) in Pune — a non-metro city.
- ·The taxable remainder: HRA received of ₹3,00,000 minus the ₹1,80,000 exemption leaves ₹1,20,000 added to taxable income. Anyone assuming the full ₹3,00,000 was exempt has understated their income by ₹1,20,000.
- ·Why test 2 usually binds: For most salaried people the rent-minus-10% test is the smallest of the three, because the 10% deduction bites and rent rarely exceeds half of basic salary. If your rent is low relative to your salary, this test can even go to zero.
| Test | Calculation | Amount |
|---|---|---|
| 1. Actual HRA received | — | ₹3,00,000 |
| 2. Rent − 10% of salary | ₹2,40,000 − ₹60,000 | ₹1,80,000 |
| 3. 40% of salary (non-metro) | 40% × ₹6,00,000 | ₹2,40,000 |
| Exemption | Lowest of the three | ₹1,80,000 |
Conditions that trip people up
- ·Old regime only: HRA exemption is not available under the new tax regime. If you are claiming significant HRA, factor it into the old versus new regime comparison before choosing — for many renters it is the single item that keeps the old regime ahead.
- ·You must actually pay rent: The exemption requires rent genuinely paid for accommodation you occupy. You cannot claim it while living in a property you own.
- ·Landlord PAN: Required where annual rent exceeds ₹1,00,000. Without it, the employer is expected to deny the exemption at source.
- ·Paying rent to family: Permitted, and legitimate where rent is genuinely paid and the recipient declares it as income. Paying a spouse is the arrangement most likely to be challenged. Keep bank transfers and a written agreement, not cash.
- ·No HRA in your salary: If your package has no HRA component you cannot claim under 10(13A), but section 80GG may allow a smaller deduction for rent paid, subject to its own limits.
What to keep on file
HRA is a routinely scrutinised claim, and the documentation burden falls on you rather than your employer. Retain rent receipts or bank transfer records for every month claimed, a rent agreement naming you as tenant, and the landlord PAN where rent exceeds ₹1 lakh a year.
Rent paid in cash with hand-written receipts and no corresponding bank debit is the pattern most likely to be disallowed on examination. Paying by transfer costs nothing and makes the claim defensible.
Rules change between budgets
Thresholds, metro classification and regime rules are revised periodically. This calculator reflects the long-standing structure of section 10(13A), but confirm current-year specifics before filing, and consult a qualified tax professional where the amounts are material.
Last reviewed August 2, 2026 · How we check our calculators