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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.

PushDraft Team •

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

The HRA Exemption Formula

Your exempt HRA under Section 10(13A) is the minimum of these three amounts:

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

The amount not exempted is added to your taxable income.

Metro vs Non-Metro

Only four cities are classified as “metro” for HRA purposes:

  • Delhi
  • Mumbai
  • Kolkata
  • Chennai

Bangalore, Hyderabad, Pune, Gurgaon — despite being major Tier-1 cities — are classified as non-metro for HRA. This is a historical quirk of the Income Tax Act and costs professionals in these cities thousands in extra tax each year.

Worked Example

Rohan, software engineer in Bangalore

  • 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 (non-metro)

Calculate the three components:

  1. Actual HRA received: ₹3,00,000
  2. 40% of basic (non-metro): ₹6,00,000 × 0.40 = ₹2,40,000
  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 20% slab): ₹2,40,000 × 0.20 = ₹48,000/year.

Documents You Need

If you claim HRA exemption, keep these ready for your employer and tax filing:

  • Rent receipts (monthly, with revenue stamp for rent above ₹5,000/month in most states)
  • Rental agreement (registered if rent exceeds ₹1 lakh/year)
  • Landlord’s PAN — mandatory if annual rent exceeds ₹1,00,000
  • Bank transfer proof — preferred over cash payments (the tax department has flagged cash rent in recent years)

If your landlord refuses to share PAN, you can file Form 60 with your employer, but this invites scrutiny and is best avoided.

Common Mistakes

  1. Claiming HRA under the new regime. The new regime does not allow HRA exemption. If you want to use HRA, you must opt for the old regime at the start of the financial year via your employer’s payroll.
  2. Paying rent to a family member with no agreement. Legally allowed, but you must have a formal rent agreement, bank transfer proof, and the family member must show this as rental income in their own return. Fake arrangements are routinely caught.
  3. Double-claiming HRA and home loan interest on the same property. If you own a house in the same city where you work, you can’t simultaneously claim HRA (as a tenant) and Section 24(b) interest (as a home-loan owner) on the same property. You can on different properties.
  4. Using “metro” rates for Bangalore or Pune. The 40% rate applies. Using 50% is a common error that employers catch and adjust at year-end — often leaving employees with a shock TDS deduction in March.

HRA vs Standard Deduction Under the New Regime

Under the new regime for FY 2026-27, everyone gets a flat ₹75,000 standard deduction (up from ₹50,000 in the old regime). For many renters, especially in non-metro cities with moderate rent, the loss of HRA under the new regime is larger than the ₹25,000 gain in standard deduction. The breakeven depends heavily on rent and salary — use our Tax Regime Comparison to see which regime saves you more.

Self-Employed or Freelancers: Use Section 80GG Instead

If you don’t receive HRA as part of your salary (self-employed, or employed but no HRA component), you can claim Section 80GG under the old regime. It’s capped at ₹60,000/year — much lower than HRA — and has strict conditions (you must not own a house in the city you work in).

Use Our HRA Calculator

Our HRA Calculator instantly computes your exempt HRA from your basic salary, HRA received, monthly rent, and city type. Combine it with our CTC Salary Calculator to see your full take-home after HRA exemption is applied.