How HRA exemption is calculated under section 10(13A)
House Rent Allowance is part of your salary, but the portion that qualifies for exemption is not taxed. Rule 2A of the Income-tax Rules fixes the exempt amount as the least of three figures: (1) the actual HRA you received, (2) rent paid minus 10% of salary, and (3) 50% of salary if you live in Delhi, Mumbai, Kolkata or Chennai, or 40% of salary anywhere else. Whatever is left of the HRA after this exemption is added to your taxable salary.
"Salary" for this purpose means basic pay plus dearness allowance (only if DA counts for retirement benefits) plus any commission fixed as a percentage of turnover. Special allowance, bonus and other allowances are not included, which is why two people on the same CTC can get very different exemptions depending on how their pay is structured.
The calculation is done for the period in which rent was actually paid, so if you moved cities or started renting mid-year, work it out separately for each stretch. The calculator lets you enter monthly or annual figures; monthly figures are multiplied by 12.
Worked example: ₹40,000 basic, ₹18,000 rent in a non-metro
Suppose basic salary is ₹40,000 per month (₹4,80,000 a year), HRA received is ₹20,000 per month (₹2,40,000) and rent paid is ₹18,000 per month (₹2,16,000) in Chandigarh, which is a non-metro for HRA.
| Test | Working | Amount |
|---|---|---|
| Actual HRA received | ₹20,000 × 12 | ₹2,40,000 |
| Rent paid less 10% of salary | ₹2,16,000 − ₹48,000 | ₹1,68,000 |
| 40% of salary (non-metro) | 40% × ₹4,80,000 | ₹1,92,000 |
| Exempt HRA (least of the three) | ₹1,68,000 | |
| Taxable HRA | ₹2,40,000 − ₹1,68,000 | ₹72,000 |
What the example tells you
The second test, rent minus 10% of salary, is the binding constraint in this example. Raising the rent to ₹20,000 a month would lift that figure to ₹1,92,000 and the exemption would then be capped by the 40% rule instead. In a metro the third test would be ₹2,40,000, but the exemption would still be ₹1,68,000 because the rent test is lower. This is why the calculator highlights which of the three limits is binding: it shows what would actually change your exemption.
At a 30% slab the ₹1,68,000 exemption saves about ₹52,400 of tax including cess under the old regime. The new regime gives no HRA exemption at all, so compare both regimes with the income tax calculator before deciding.
Conditions and documents for claiming HRA
- You must actually pay rent for accommodation you occupy; you cannot claim HRA for a house you own or one occupied rent-free.
- Rent receipts are needed for the employer; most companies ask for them if rent exceeds ₹3,000 a month. Keep the rent agreement and bank transfers as well.
- If annual rent exceeds ₹1,00,000 (₹8,333 a month), the landlord's PAN must be given to the employer in Form 12BB, or a declaration in Form 60 if the landlord has no PAN.
- If monthly rent exceeds ₹50,000, deduct 2% TDS under section 194-IB once a year and file Form 26QC; you do not need a TAN.
- Paying rent to parents is allowed if the house is in their name and the money genuinely changes hands; they must report it as rental income. Paying rent to a spouse is generally not accepted.
- HRA can be claimed together with home loan interest if you own a house in another city or cannot live in your own house because of work.
Metro versus non-metro: which cities count
Only Delhi, Mumbai, Kolkata and Chennai are metros for HRA. Bengaluru, Hyderabad, Pune, Ahmedabad, Gurugram, Noida, Chandigarh, Mohali and Panchkula are all non-metro despite high rents, so the 40% limit applies. Because the third test is 40% or 50% of basic plus DA, employees with a low basic and high special allowance often find their exemption capped even when they pay high rent; asking HR to restructure salary with a higher basic can raise the exemption.
No HRA in your salary? Use section 80GG
Self-employed people and employees whose salary has no HRA component can claim rent under section 80GG in the old regime. The deduction is the least of ₹5,000 per month (₹60,000 a year), 25% of adjusted total income, and rent paid minus 10% of adjusted total income. You, your spouse or minor child must not own a house in the city where you live, and you must file Form 10BA with the return.
HRA and the new tax regime
HRA exemption is available only under the old regime. If your HRA exemption plus 80C, 80D and home loan interest add up to less than roughly ₹4 to 6 lakh, the new regime is usually cheaper even after giving up HRA, because its slabs are wider and the standard deduction is ₹75,000. Use this calculator to get the exempt amount, plug it into the income tax calculator, and compare the two totals before submitting your investment declaration.