How is HRA exemption calculated?

CA Vijay R Singh, FCA
Chartered Accountant · ICAI M.No. 153926 · FRN 136869W

Short answerHRA exemption (old regime) is the least of three figures: the actual HRA received; rent paid minus 10% of salary; and 50% of salary in a metro (40% non-metro). ‘Salary’ here means basic plus dearness allowance. The lowest of the three is your exempt HRA.

The three-way test

HRA exemption under Section 10(13A) is the least of: (1) the actual HRA in your salary; (2) rent paid minus 10% of salary; and (3) 50% of salary if you live in a metro (Delhi, Mumbai, Kolkata, Chennai) or 40% elsewhere. For this, ‘salary’ is basic + dearness allowance (and commission on a fixed percentage of turnover, if any). It is available only in the old regime.

What you need to claim it

You must actually pay rent and have proof — rent receipts and, if annual rent exceeds ₹1 lakh, the landlord’s PAN. No exemption is available if you don’t pay rent or live in your own house. Confirm the metro list and conditions for your case.

A worked example

Example: basic salary ₹6 lakh, HRA ₹3 lakh, rent paid ₹2.4 lakh in Mumbai. The three figures are: actual HRA ₹3 lakh; rent minus 10% of salary = ₹2.4 lakh − ₹60,000 = ₹1.8 lakh; 50% of salary = ₹3 lakh. The least is ₹1.8 lakh, so that is exempt and the remaining ₹1.2 lakh of HRA is taxable. You can claim HRA and a home loan together in some cases. Our team can compute it.

Income Tax

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This answer is general information for taxpayers, not tax advice. Tax rates, thresholds and forms change with each Finance Act — please confirm the current position for your own facts, or speak to us, before acting.