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HRA Exemption 2026: Calculate Tax-Free HRA

Step-by-step guide to House Rent Allowance exemption under Section 10(13A) for FY 2026-27. Metro vs non-metro rules, required proofs, and common mistakes.

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House Rent Allowance is one of the largest tax-saving components in a typical Indian salary — but only if you actually pay rent, claim it correctly, and are on the old tax regime. Under the new regime (default from FY 2023-24), HRA exemption is simply not available.

That last point trips up a lot of people every April.

The HRA Exemption Formula

Under Section 10(13A), the exempt portion of your HRA is the minimum of these three amounts:

  1. Actual HRA received from your employer
  2. 50% of basic salary if you live in a metro city, or 40% of basic if non-metro
  3. Rent paid minus 10% of basic salary

Whatever doesn’t qualify as exempt gets added to your taxable income.

Metro vs Non-Metro: A Costly Distinction

From FY 2026-27 (effective April 1, 2026), 8 cities count as “metro” for HRA purposes (expanded from 4 under the Income Tax Rules 2026):

  • Delhi
  • Mumbai
  • Kolkata
  • Chennai
  • Bangalore (Bengaluru)
  • Pune
  • Hyderabad
  • Ahmedabad

All 8 metros now qualify for the 50% HRA exemption bracket. Previously, only the original four cities qualified, and residents of Bangalore, Hyderabad, Pune, and Ahmedabad were getting 40% despite paying rents comparable to Mumbai.

Source: Income Tax Rules 2026, effective April 1, 2026. Confirmed by TaxGuru, ClearTax, AngelOne.

Worked Example

Rohan, software engineer in Bangalore (FY 2026-27)

  • Basic salary: ₹6,00,000/year
  • HRA received: ₹3,00,000/year (50% of basic)
  • Monthly rent paid: ₹25,000 → ₹3,00,000/year
  • City: Bangalore (now metro from FY 2026-27 — Income Tax Rules 2026)

Calculate the three components:

  1. Actual HRA received: ₹3,00,000
  2. 50% of basic (metro): ₹6,00,000 × 0.50 = ₹3,00,000
  3. Rent paid − 10% of basic: ₹3,00,000 − ₹60,000 = ₹2,40,000

Exempt HRA = minimum of the three = ₹2,40,000

Taxable HRA = ₹3,00,000 − ₹2,40,000 = ₹60,000

Rohan’s tax saving from HRA at a 20% slab rate: ₹2,40,000 × 0.20 = ₹48,000/year. Under the old 40% non-metro rule, the exempt HRA would have been the same ₹2,40,000 (rule 3 was already the binding constraint). However, users with lower rent relative to basic will now see higher exemptions under the new 50% metro bracket.

Documents You Need

If you’re claiming HRA exemption, keep these ready for your employer and your ITR:

  • Rent receipts (monthly, with revenue stamp for rent above ₹5,000/month in most states)
  • Rental agreement (registered if annual rent exceeds ₹1 lakh)
  • Landlord’s PAN — mandatory if annual rent exceeds ₹1,00,000
  • Bank transfer proof — preferred over cash payments. The income tax department has been flagging cash rent arrangements more frequently in recent assessments.

If your landlord refuses to provide PAN, you can file Form 60, but this draws attention and is generally best avoided.

Common Mistakes

  1. Claiming HRA under the new regime. The new tax regime doesn’t allow HRA exemption at all. If you want to use HRA to reduce tax, you must opt for the old regime at the start of the financial year when your employer asks.
  2. Paying rent to a family member without proper documentation. Legally permitted — but you need a formal rental agreement, consistent bank transfers, and the family member must declare this as rental income in their own ITR. Arrangements that lack paper trails are routinely scrutinized.
  3. Double-claiming HRA and home loan interest on the same property. If you own a house in the same city you work in, you can’t claim HRA as a tenant and Section 24(b) home loan interest simultaneously on that same property. On different properties in different cities — it is possible, but verify with a CA for your specific situation.
  4. Using the wrong metro classification for your city. From FY 2026-27, Bangalore, Pune, Hyderabad, and Ahmedabad are now metro (50%). If your employer is still applying 40% for these cities after April 1, 2026, ask HR to correct it — it will result in excess TDS deduction through the year.

HRA vs Standard Deduction: The New Regime Trade-Off

Under the new regime for FY 2026-27, everyone gets a flat ₹75,000 standard deduction. Under the old regime, it’s ₹50,000 — but HRA exemption can add significantly more.

For many renters — especially those in non-metro cities paying moderate rent — the HRA they’d lose by moving to the new regime is larger than the ₹25,000 gain in standard deduction. But that’s not universal. The math depends on your rent, basic salary, and total deductions.

Use our Tax Regime Comparison to run your specific numbers before choosing.

Self-Employed or No HRA in Salary? Use Section 80GG

If your salary doesn’t include an HRA component, or if you’re self-employed, you can claim Section 80GG under the old regime. It’s capped at ₹60,000/year — much lower than typical HRA — and has strict conditions: you must not own a house in the city where you work, and neither you, your spouse, nor your minor child can own a house in that city.

Use Our HRA Calculator

Our HRA Calculator computes your exempt HRA from your basic salary, HRA received, monthly rent, and city type — instantly, without sign-up. Combine it with our CTC Salary Calculator to see how HRA exemption affects your full take-home.