HRA is the most misunderstood tax exemption in India. The formula has three parts, and only the lowest of the three is exempt — not the full amount received. This guide walks through every scenario: renting from a landlord, paying rent to parents, living in your own home, and claiming HRA in a different city from your owned property.
House Rent Allowance (HRA) is a component of salary that employers provide to help employees cover accommodation costs. It is typically 40–50% of Basic salary, depending on whether you work in a metro or non-metro city. While the HRA amount is listed as part of your gross salary, a significant portion can be claimed as a tax exemption — but only under the old tax regime and only if you actually pay rent.
HRA exemption is only available under the old tax regime. If you have opted for the new tax regime, the entire HRA received is added to your taxable income. Factor this into your regime comparison before deciding.
The exempt portion of HRA is the minimum of three amounts:
Only the lowest of A, B, and C is exempt from tax. Any HRA received above this minimum is fully taxable and added to your gross income.
DA (Dearness Allowance) is included in the formula but is typically zero for private sector employees. Government employees receive DA — private sector employees generally do not, so Basic salary alone is used in practice for most calculations.
| Detail | Amount |
|---|---|
| Basic salary | ₹40,000/month |
| HRA received from employer | ₹20,000/month |
| Actual rent paid | ₹18,000/month |
| City | Mumbai (metro) |
₹20,000/month → ₹2,40,000/year
50% × ₹40,000 = ₹20,000/month → ₹2,40,000/year
₹18,000 − (10% × ₹40,000) = ₹18,000 − ₹4,000 = ₹14,000/month → ₹1,68,000/year
Minimum = ₹1,68,000 (Calculation C). This is the exempt amount. The remaining ₹72,000 (₹2,40,000 received − ₹1,68,000 exempt) is added to taxable income. Use ToolLoom's HRA Calculator to run your exact numbers instantly.
| Category | Cities | % of Basic for Calculation B |
|---|---|---|
| Metro | Delhi, Mumbai, Chennai, Kolkata | 50% |
| Non-metro | Bengaluru, Hyderabad, Pune, Ahmedabad, and all other cities | 40% |
Only 4 cities qualify as metro for HRA purposes — Delhi, Mumbai, Chennai, and Kolkata. Bengaluru, Hyderabad, and Pune are NOT metro cities for HRA, despite being major economic centres. Residents of these cities use 40%, not 50%.
Yes — and it's one of the most effective legal tax-saving strategies for salaried Indians who live with their parents in a family-owned home. The arrangement is valid if:
Family tax benefit: If your parent is in a lower tax slab (or has income below the taxable threshold), the rent they receive is taxed at their lower rate — while you save at your higher slab. The net family tax outflow decreases.
Proof must typically be submitted during the employer's annual investment/proof submission window — usually January to February. Missing this window means full TDS on HRA; you can still claim the exemption when filing your ITR but won't get the monthly salary benefit.
If you own and live in your home, the entire HRA received is taxable — calculation C becomes negative (since rent paid = zero), and no exemption applies. However, you may be able to claim deductions under Section 24b for home loan interest (up to ₹2 lakh per year) and Section 80C for home loan principal repayment (within the ₹1.5 lakh limit).