tax
HRA Exemption Calculation: Rules and Worked Examples
By Himanshu Kumar Gupta · · 6 min read
Your tax-free HRA is the lowest of three amounts:
1. The HRA you actually receive.
2. Rent paid minus 10% of your basic salary.
3. 50% of basic salary if you live in a metro city, or 40% elsewhere.
Whatever is left of your HRA after that is taxable. Use yearly figures for all three. The exemption is available only in the old tax regime.
Example 1: metro city
Basic ₹50,000 a month, HRA ₹20,000 a month, rent ₹22,000 a month.
| Test | Yearly amount |
|---|---|
| Actual HRA | ₹2,40,000 |
| Rent minus 10% of basic | ₹2,04,000 |
| 50% of basic | ₹3,00,000 |
| Exempt HRA (lowest) | ₹2,04,000 |
Taxable HRA = ₹36,000 a year.
Example 2: non-metro city
Basic ₹30,000, HRA ₹12,000 and rent ₹15,000 a month.
| Test | Yearly amount |
|---|---|
| Actual HRA | ₹1,44,000 |
| Rent minus 10% of basic | ₹1,44,000 |
| 40% of basic | ₹1,44,000 |
| Exempt HRA (lowest) | ₹1,44,000 |
Taxable HRA = ₹0 a year.
Rules that trip people up
- Basic salary here means basic plus dearness allowance where DA counts for retirement benefits.
- Landlord's PAN is needed by your employer if your yearly rent is above ₹1 lakh.
- Paying rent to parents is allowed if they own the house and show the rent as their income. Rent to a spouse is not accepted.
- No HRA in salary? Section 80GG may allow a smaller deduction in the old regime.
- Home loan and HRA together are possible, for example if your own house is in another city.
Does HRA change your regime choice?
A large HRA exemption is one of the main reasons the old regime still wins for some salaried people. Put your exemption into the old vs new regime calculator to check. Work out the exempt amount first with the HRA calculator.
Frequently asked questions
- How is HRA exemption calculated?
- It is the lowest of actual HRA received, rent paid minus 10% of basic salary, and 50% of basic (metro) or 40% (non-metro), all on a yearly basis.
- Can I claim HRA in the new tax regime?
- No. The HRA exemption is available only if you choose the old regime.
- Can I claim HRA if I pay rent to my parents?
- Yes, if they own the house, you actually pay the rent, and they declare it as income in their return.