HRA Exemption Calculation: Formula + Examples (2026)
HRA exemption is the least of three amounts: actual HRA, 50%/40% of basic, or rent minus 10% of basic. Formula, worked examples, documents needed, and old vs new regime guidance.
If you live in a rented home and your salary includes HRA, a chunk of your salary can be completely tax-free - but only under the old tax regime, and only if you calculate and claim it right. Here is the exact HRA exemption calculation formula, worked examples, and the documents that make it stick.
The HRA exemption formula
The exempt amount is the least of these three:
- Actual HRA received from your employer
- 50% of basic salary (metro cities: Delhi, Mumbai, Chennai, Kolkata) or 40% (non-metro)
- Actual rent paid minus 10% of basic salary
Whatever number is smallest is your exemption. The rest of the HRA is taxed as normal salary.
Worked example: Rs 50,000 basic in Bengaluru
Say your monthly basic is Rs 50,000, HRA received is Rs 20,000, and rent paid is Rs 18,000 (Bengaluru - non-metro for HRA):
| Rule | Calculation | Amount |
|---|---|---|
| Actual HRA received | Given | Rs 20,000 |
| 40% of basic (non-metro) | 50,000 x 40% | Rs 20,000 |
| Rent minus 10% of basic | 18,000 - 5,000 | Rs 13,000 |
| Exemption (least of three) | Rs 13,000/month |
So Rs 1,56,000 of your annual HRA is tax-free; the remaining Rs 84,000 is taxed at your slab rate.
Same numbers in Mumbai (metro)
Only rule 2 changes - 50% instead of 40%:
| Rule | Amount |
|---|---|
| Actual HRA received | Rs 20,000 |
| 50% of basic (metro) | Rs 25,000 |
| Rent minus 10% of basic | Rs 13,000 |
| Exemption | Rs 13,000/month (unchanged) |
Notice that in most real cases, rule 3 - rent minus 10% of basic - is the binding limit. Metro status matters only when your HRA is small relative to your basic.
The catch: old regime only
HRA exemption exists only under the old tax regime. The new regime (default since FY 2023-24) offers no HRA benefit at all - it compensates with lower slab rates and the Rs 75,000 standard deduction. Whether HRA makes the old regime worth it depends on your rent and other deductions:
- High rent (Rs 25,000+) plus full 80C plus home-loan interest: old regime often wins
- Low or no rent: new regime almost always wins
Compute both before you declare to your employer in April. Our CTC-to-in-hand guide shows the new-regime math to compare against.
Documents you need
- Rent receipts for the full year - monthly or quarterly, signed by the landlord
- Rental agreement - most employers ask for it with the investment declaration
- Landlord's PAN if annual rent exceeds Rs 1 lakh - without it, the claim can be rejected
- Rent payment proof (bank transfers) if the amount is large - cash receipts alone get questioned
Paying rent to parents is legitimate if they own the house, declare the rent as their income, and the arrangement is documented like any tenancy. Paying rent to a spouse does not work - you cannot have a landlord-tenant relationship with a co-owner of your household finances.
Three mistakes that get claims rejected
- Claiming HRA while owning and living in your own house in the same city. You can claim HRA only for rent actually paid for accommodation you live in.
- Fake receipts without money movement. Employers and the tax department increasingly cross-check with bank statements. Fabricated rent is one of the most common tax-fraud findings.
- Forgetting the landlord PAN above Rs 1 lakh annual rent. A small miss that voids the whole claim in many payroll systems.
A decision framework: old regime or new?
Run this quick check every April. Add up your potential old-regime deductions: HRA exemption (from the formula above), 80C investments up to Rs 1.5 lakh, home-loan interest up to Rs 2 lakh, NPS up to Rs 50,000, and health insurance under 80D. If that total is meaningfully above the implicit benefit the new regime gives you through lower slabs - roughly Rs 3-4 lakh of deductions at middle incomes - the old regime deserves a full calculation. If your deductions are thin, the new regime wins by default and you can stop thinking about rent receipts entirely. The five minutes you spend on this comparison in April is worth more than most tax-saving products sold to you in March.
FAQ
Can I claim both HRA and home-loan benefits?
Yes, in specific situations - for example, you own a house in one city but work and rent in another, or your owned house is rented out while you live elsewhere on rent. Both conditions need documentation.
What if my salary has no HRA component?
You can still claim a deduction for rent under Section 80GG - up to Rs 5,000 a month, subject to conditions (no HRA received, no house owned in that city). It is smaller but real.
Is HRA part of CTC or on top of it?
It is a component inside your CTC, typically 40-50% of basic. Restructuring basic upward raises HRA and the exemption ceiling - one reason basic percentage matters in offers, as our salary breakups like 25 LPA in-hand show.
My landlord refuses to share PAN. What now?
For rent above Rs 1 lakh a year, get a declaration from the landlord as required by the rules; if they refuse entirely, the exemption may not hold. Many employees route rent through bank transfer and keep the agreement and receipts meticulously for exactly this reason.
Want to know whether the old regime beats the new one for your exact numbers? Model it inside the CheatCode app.