How to Calculate HRA Exemption from Income Tax

What is HRA Exemption?

House Rent Allowance (HRA) is a component of your salary that helps you pay rent. Part of the HRA you receive can be claimed as tax-exempt under Section 10(13A) of the Income Tax Act.

HRA Exemption Formula

The exempt HRA is the minimum of these three values:

1. Actual HRA received from employer
2. 50% of basic salary (metro cities) or 40% (non-metro)
3. Actual rent paid minus 10% of basic salary

Example Calculation

Suppose: Basic salary = ₹50,000/month, HRA received = ₹20,000/month, Rent paid = ₹18,000/month, City = Mumbai (metro)

• HRA received = ₹20,000
• 50% of basic = ₹25,000
• Rent – 10% of basic = ₹18,000 – ₹5,000 = ₹13,000

Exempt HRA = minimum of ₹20,000, ₹25,000, ₹13,000 = ₹13,000/month

Annual exemption = ₹13,000 × 12 = ₹1,56,000

Metro vs Non-Metro Cities

Metro cities (Delhi, Mumbai, Kolkata, Chennai) get 50% of basic. All other cities get 40%.

Documents Required

• Rent receipts (if annual rent exceeds ₹1 lakh, landlord's PAN is mandatory)
• Rent agreement
• Declaration to employer

Important Points

• HRA exemption is only available under the old tax regime
• You must actually be paying rent (cannot claim HRA if you own the house)
• You can pay rent to parents and claim HRA, but the rent is taxable in their hands
• If you receive HRA but live in your own home, the entire HRA is taxable