HRA Exemption Explained: How Much of Your HRA Is Tax-Free
If you live in a rented house and get House Rent Allowance (HRA) in your salary, part of it can be tax-free. How much depends on a three-way test. You can try your own numbers in the HRA Exemption Calculator while you read.
Key takeaways
- The tax-free HRA is the lowest of three amounts, worked out for the year.
- Metro cities get 50% of basic + DA in the test; other cities get 40%.
- HRA exemption is available only in the old tax regime, not the new regime.
The three-way test
Your exempt HRA is the lowest of these three:
- The actual HRA you received.
- Rent paid minus 10% of (basic + DA).
- 50% of (basic + DA) if you live in a metro, or 40% elsewhere.
Whatever HRA is left over is added to your taxable salary. "Salary" here means basic pay plus dearness allowance (if DA counts for retirement benefits), plus any commission based on a fixed percentage of sales. Other allowances are not included.
Which cities are metros?
The Income-tax Rules, 2026, which apply from 1 April 2026 along with the new Income-tax Act, 2025, list the 50% metro cities as Mumbai, Delhi, Kolkata, Chennai, Bengaluru, Hyderabad, Pune and Ahmedabad. Before this, only Mumbai, Delhi, Kolkata and Chennai counted. Everywhere else the 40% figure applies.
Worked example
Say you live in a metro, with basic + DA of ₹50,000 a month, HRA of ₹20,000 a month and rent of ₹22,000 a month. For the year:
- Actual HRA received: ₹20,000 × 12 = ₹2,40,000.
- Rent paid minus 10% of basic + DA: ₹2,64,000 − ₹60,000 = ₹2,04,000.
- 50% of basic + DA: 50% of ₹6,00,000 = ₹3,00,000.
The lowest is ₹2,04,000, so that much is tax-free. The remaining ₹2,40,000 − ₹2,04,000 = ₹36,000 is added to your taxable income.
Documents and practical tips
- Keep rent receipts and a rent agreement, and pay rent by bank transfer where you can.
- If your rent is over ₹1 lakh a year, you must give your employer your landlord's PAN.
- You can pay rent to your parents and claim HRA if they own the house, but they must show the rent as income in their tax return.
Old regime only
HRA exemption is not available in the new regime, where all your HRA is taxable. The lower slab rates of the new regime may still work out cheaper overall, so compare both in the Income Tax Calculator rather than assuming. Rules change, so check the latest rules before filing.
Try the calculator
HRA Exemption CalculatorIncome Tax Calculator
Frequently asked questions
Can I claim HRA in the new tax regime?
No. The HRA exemption is only available in the old regime. In the new regime, all your HRA is taxable, but the lower slab rates may still work out cheaper overall.
I do not get HRA from my employer. Can I still save tax on rent?
In the old regime, self-employed people and employees without HRA may claim a separate deduction for rent paid, often known as Section 80GG, subject to limits. It is smaller than the HRA exemption for most people.
What counts as salary for HRA?
Basic salary plus dearness allowance (if DA counts for retirement benefits), plus any commission based on a fixed percentage of sales. Other allowances are not included.
Can I claim HRA and a home loan deduction together?
Yes, if you live in a rented house while repaying a home loan, for example because your own house is in another city or not yet ready. You must have genuine reasons and proof for both.