House Rent Allowance (HRA) is one of the biggest tax-saving components for salaried employees in India. If you live in a rented house, you can claim HRA exemption under Section 10(13A) of the Income Tax Act. This guide explains the complete HRA exemption rules, calculation method, and common mistakes for FY 2026-27.
What is HRA Exemption?
HRA is a component of your salary paid by your employer to cover rental expenses. Under Section 10(13A) read with Rule 2A, you can claim tax exemption on HRA received, subject to certain conditions and limits.
HRA Exemption Calculation (3 Conditions)
HRA exemption is the LEAST of these three amounts:
| Condition | Formula | Notes |
|---|---|---|
| 1. Actual HRA received | As per salary slip | Annual HRA component |
| 2. Rent minus 10% of salary | Annual Rent − 10% of (Basic + DA) | If negative, HRA = 0 |
| 3. 50% of salary (Metro) | 50% of (Basic + DA) | Delhi, Mumbai, Kolkata, Chennai |
| 3. 40% of salary (Non-Metro) | 40% of (Basic + DA) | All other cities |
HRA Calculation Example
Example 1: Metro City (Mumbai)
| Component | Amount (Annual) |
|---|---|
| Basic Salary + DA | ₹6,00,000 |
| HRA Received | ₹2,40,000 |
| Actual Rent Paid | ₹3,00,000 |
Calculation:
- Actual HRA received: ₹2,40,000
- Rent − 10% of salary: ₹3,00,000 − ₹60,000 = ₹2,40,000
- 50% of salary (Metro): 50% × ₹6,00,000 = ₹3,00,000
HRA Exemption = Least of (₹2,40,000, ₹2,40,000, ₹3,00,000) = ₹2,40,000
Taxable HRA = ₹2,40,000 − ₹2,40,000 = ₹0 (Fully exempt!)
Example 2: Non-Metro City (Pune)
| Component | Amount (Annual) |
|---|---|
| Basic Salary + DA | ₹4,80,000 |
| HRA Received | ₹1,92,000 |
| Actual Rent Paid | ₹1,80,000 |
Calculation:
- Actual HRA received: ₹1,92,000
- Rent − 10% of salary: ₹1,80,000 − ₹48,000 = ₹1,32,000
- 40% of salary (Non-Metro): 40% × ₹4,80,000 = ₹1,92,000
HRA Exemption = Least of (₹1,92,000, ₹1,32,000, ₹1,92,000) = ₹1,32,000
Taxable HRA = ₹1,92,000 − ₹1,32,000 = ₹60,000
Calculate Your HRA Exemption
Use our free HRA calculator to find your exact HRA exemption in seconds.
HRA Calculator Free →Documents Required for HRA Claim
- Rent receipts: Monthly rent receipts with landlord name, address, amount, period
- Rent agreement: Registered lease/rent agreement
- Landlord PAN: Mandatory if annual rent exceeds ₹1,00,000
- Bank statement: Showing rent payment (for cash payments, keep receipts)
- Landlord declaration: If landlord has no PAN, obtain a declaration
HRA Special Cases
Living With Parents
You can claim HRA exemption if you pay rent to your parents. Conditions:
- Parents own the house
- Parents declare the rent as income in their ITR
- Genuine rent payment (bank transfer preferred)
- Rent agreement between you and parents
Own House + Rented House in Another City
If you own a house in one city but live in a rented house in another (due to work), you can claim HRA exemption on the rented house AND home loan interest on the owned house.
No HRA in Salary
If you don't receive HRA but pay rent, you can claim deduction under Section 80GG: Up to ₹5,000/month (₹60,000/year), subject to conditions.
Common HRA Mistakes
- Not keeping rent receipts: CAs and tax officers demand receipts. Digital receipts are acceptable.
- Exaggerating rent: Rent should be realistic. Rent of ₹50,000/month for a 1BHK will attract scrutiny.
- Missing landlord PAN: Claim gets rejected without PAN for rent above ₹1 lakh/year.
- Not declaring landlord income: If landlord doesn't show rental income, both can face notices.
- Ignoring 10% salary deduction: Many employees miscalculate. The 10% deduction significantly reduces exemption.