Quick answer: HRA exemption is the lowest of three amounts: (1) the HRA you actually receive, (2) rent paid minus 10% of your salary (Basic + DA), and (3) 50% of salary if you live in a metro city, 40% otherwise. It is available only in the old tax regime. From FY 2026-27, eight cities qualify for the 50% rate — Delhi, Mumbai, Kolkata, Chennai, plus Bengaluru, Hyderabad, Pune and Ahmedabad.
What HRA exemption is and who can claim it
House Rent Allowance (HRA) is part of your salary. If you live in rented accommodation and pay rent, a part of the HRA you receive is exempt from tax — you do not pay income tax on that portion. The rest of the HRA is added to your taxable salary.
Under the Income-tax Act, 2025 (which applies from FY 2026-27, Tax Year 2026-27), HRA exemption sits under Section 11 read with Schedule III, Sl. No. 11, with the working rules in Rule 279 of the Income Tax Rules, 2026. Under the old 1961 Act it was Section 10(13A) read with Rule 2A.
You can claim the exemption only if all three of these are true:
- You receive HRA as a component of your salary.
- You actually pay rent for a house you live in.
- You have opted for the old tax regime — in the new tax regime (Section 202 of the 2025 Act), the whole HRA is taxable.
If any one of these is missing, there is no HRA exemption.
The exemption formula, step by step
Your exemption is the lowest of these three figures:
| Limb | How to calculate |
|---|---|
| (1) HRA received | Total HRA credited by your employer in the financial year. |
| (2) Rent paid − 10% of salary | (Annual rent you paid) − 10% × (annual “salary” as defined below). |
| (3) Salary × percentage | 50% of salary if the rented house is in a metro city, else 40% of salary. |
Salary for HRA = Basic + Dearness Allowance (DA) + commission (if any). Do not add HRA itself or special allowances to this figure. This is the most common mistake people make — using gross salary instead of Basic + DA shrinks the exemption wrongly in one direction and inflates it in another.
Worked example (FY 2026-27)
| Item | Monthly | Annual |
|---|---|---|
| Basic | ₹40,000 | ₹4,80,000 |
| Dearness Allowance | ₹5,000 | ₹60,000 |
| Salary for HRA | ₹45,000 | ₹5,40,000 |
| HRA received | ₹18,000 | ₹2,16,000 |
| Rent paid | ₹16,000 | ₹1,92,000 |
| City | Bengaluru (metro from FY 2026-27) | |
- Limb 1 — HRA received = ₹2,16,000.
- Limb 2 — Rent − 10% of salary: 10% of salary = 0.10 × ₹5,40,000 = ₹54,000. Rent − 10% of salary = ₹1,92,000 − ₹54,000 = ₹1,38,000.
- Limb 3 — 50% of salary (metro): 0.50 × ₹5,40,000 = ₹2,70,000.
Exempt amount = the lowest of the three = ₹1,38,000. Taxable HRA = ₹2,16,000 − ₹1,38,000 = ₹78,000. That ₹78,000 is added to your taxable salary.
Note: for FY 2025-26 the same person would have used 40% (₹2,16,000) for Limb 3, because Bengaluru was still non-metro then. Here Limb 2 is still the lowest, so the answer does not change — but when rent is high, the city-list change is what decides the exemption.
What changed in 2026 — and what stayed the same
| Fiscal year | Cities that qualify for the 50% rate |
|---|---|
| 2025-26 (AY 2026-27) | Delhi, Mumbai, Kolkata, Chennai |
| 2026-27 onward (AY 2027-28) | Delhi, Mumbai, Kolkata, Chennai, Bengaluru, Hyderabad, Pune, Ahmedabad |
| Area | Old provision (1961 Act) | New provision (2025 Act) |
|---|---|---|
| HRA exemption | Section 10(13A) read with Rule 2A | Section 11 read with Schedule III, Sl. No. 11; Rule 279 (Income Tax Rules, 2026) |
| Employer declaration form | Form 12BB | Form 124 — now includes a field to disclose your relationship with the landlord when rent to a family member exceeds ₹1 lakh a year |
| HRA under new tax regime | Fully taxable | Still fully taxable (Section 202) |
| Rent deduction when no HRA | Section 80GG (Form 10BA) | Section 134 (Form 31) — old regime only |
Everything else stays the same: the three-limb formula, the 10% salary rule, and the landlord-PAN requirement for rent above ₹1 lakh a year.
Paying rent to your parents — a safe checklist
You can claim HRA exemption for rent paid to parents if the arrangement is genuine. The tax department accepts it when the paperwork and the money trail are real. Follow this checklist:
- The parent owns the house you live in, and you are not a co-owner of it.
- You actually pay rent each month — no paper-only arrangement.
- Payment is made by bank transfer, UPI, NEFT or cheque — never cash.
- A rent agreement is in place for the financial year.
- You keep monthly rent receipts signed by the parent.
- The parent declares the rental income in their own ITR.
- If total rent exceeds ₹1 lakh a year, disclose the relationship in your Form 124 declaration to your employer.
- Keep a copy of the parent’s PAN — it must be quoted when annual rent exceeds ₹1 lakh.
If any of these is missing, the department may reject the exemption on scrutiny. The parent’s side of the deal is usually light on tax: after the 30% standard deduction on rental income and the basic exemption limit, many retired parents pay little or no tax on the rent they receive.
What about rent to a spouse?
Rent paid to a spouse is treated with suspicion and is often disallowed, because spouses are seen as sharing one household and one purse. Do not build your tax plan on it.
HRA together with home-loan benefits
You can enjoy both at the same time, provided the properties are different:
| Situation | What you can claim |
|---|---|
| Own a house in City A and live on rent in City B | HRA exemption for City B + home-loan interest deduction under Section 22 (formerly 24(b)) for City A. |
| Own a house that is let out, and live on rent elsewhere | HRA exemption for the rented house + home-loan interest and 30% standard deduction on the let-out house’s rental income. |
| Live in a house you own | No HRA exemption — you pay no rent, so there is nothing to exempt. Home-loan interest (Section 22) may still apply. |
Read the full rules for rented and owned houses in our guide to income from house property.
No HRA in your salary? Use Section 80GG / Section 134
If your salary has no HRA component — or you are self-employed and pay rent — you cannot use the HRA exemption. Instead, claim a rent deduction under Section 134 of the 2025 Act (formerly Section 80GG of the 1961 Act). It is the lowest of:
- ₹5,000 per month (₹60,000 per year).
- 25% of your total income (before Chapter VI-A deductions).
- Rent paid − 10% of total income.
Mini-example: monthly rent ₹12,000 (annual ₹1,44,000), total income ₹6,00,000. The three figures are ₹60,000 (cap), ₹1,50,000 (25%), and ₹1,44,000 − ₹60,000 = ₹84,000. The deduction allowed is the lowest: ₹60,000. The cap keeps this benefit small — which is exactly why HRA, when you get it, is worth more.
Conditions: you must be an individual, you must not have received HRA during the year, and neither you, your spouse, your minor child nor your HUF may own a residential house where you live or work. File Form 31 under the 2025 Act (Form 10BA under the 1961 Act) and keep the rent agreement, receipts and payment proof. Old regime only.
Documents you should keep
| Document | When needed |
|---|---|
| Signed rent agreement (year-long) | HRA exemption, Section 134 claim |
| Monthly rent receipts (signed) | HRA exemption, Section 134 claim |
| Bank-transfer / UPI / NEFT proof | Every HRA claim — cash is hard to prove |
| Landlord’s PAN (if rent > ₹1 lakh/year) | Needed in ITR and Form 124 |
| Form 124 declaration | If rent > ₹1 lakh to a family member |
| Proof the parent declared the rent | Rent-to-parent claims |
| Home-loan statement (interest paid) | Section 22 deduction |
| Form 10BA (old) / Form 31 (new) | Section 134 claim |
Keep these records for at least six years — the tax department can ask for them during assessment. If you did not submit HRA proof to your employer during the year, you can still claim the exemption while filing your ITR, as long as the documents are in order.
Practical impact — old regime vs new regime
| Feature | Old tax regime (FY 2026-27) | New tax regime (FY 2026-27) |
|---|---|---|
| HRA exemption | Available (Section 11 + Schedule III Sl. 11) | Not available — HRA fully taxable |
| Standard deduction | ₹50,000 | ₹75,000 |
| 80C deductions (Section 123) | Up to ₹1,50,000 | Not available |
| 80D health insurance (Section 126) | Up to ₹25,000 (self/family under 60); ₹50,000 for senior citizens | Not available |
| Rent deduction without HRA (Section 134) | Available | Not available |
| Home-loan interest (Section 22) | Available | Self-occupied: not available; let-out property: allowed |
If you pay high rent and receive a sizable HRA, the old regime often wins, because the exemption alone can be ₹1-2 lakh a year. But do not assume — compare both regimes on your full salary picture before you file. See our new regime slabs guide and the 87A rebate guide for the other side of the comparison, and check how TDS on salary treats your HRA through the year.
Frequently asked questions
1. How is HRA exemption calculated?
Take the lowest of (i) the HRA you actually receive, (ii) rent paid minus 10% of salary, and (iii) 50% of salary for a metro city (40% elsewhere). “Salary” means Basic + DA + commission, if any.
2. Can I claim HRA exemption in the new tax regime?
No. Under the new regime (Section 202), the whole HRA is taxable income. To use the exemption, you must choose the old regime.
3. Can I claim HRA if I pay rent to my parents?
Yes, if the arrangement is genuine: the parent owns the house, you actually pay rent by bank transfer, you keep a rent agreement and receipts, and the parent declares the rental income in their return. For rent above ₹1 lakh a year, disclose the relationship in Form 124.
4. Do I need my landlord’s PAN to claim HRA?
You must quote the landlord’s PAN when annual rent exceeds ₹1,00,000 (about ₹8,333 a month). If the landlord has no PAN, a written declaration with their name and address is needed instead. Keep rent receipts in all cases.
5. Which cities qualify for the 50% HRA exemption?
For FY 2025-26: only Delhi, Mumbai, Kolkata and Chennai. From FY 2026-27 onward: those four plus Bengaluru, Hyderabad, Pune and Ahmedabad — eight cities in total.
6. Can I claim HRA and home loan interest together?
Yes, if the house you own (with the loan) is different from the rented accommodation you claim HRA for — for example, an owned house in one city and rented accommodation in another, or an owned house that is let out.
7. What if my salary has no HRA component?
You cannot use the HRA exemption. Instead, you may claim a rent deduction under Section 134 (old regime) — capped at ₹60,000 a year — by filing Form 31.
Official sources
- Income Tax e-Filing Portal — incometax.gov.in
- Central Board of Direct Taxes — incometaxindia.gov.in
- India Code — Income-tax Act, 2025 (indiacode.nic.in)
Related guides
- TDS on Rent: Section 194-I vs 194-IB — ₹50,000/Month Rule Explained
- Income from House Property: How Rental Income, Home Loan Interest and the 30% Deduction Work (2026)
- New vs Old Tax Regime 2026: Which Saves You More Tax?
Reviewed by Asuthod Rathod, CA
Last updated: 16 October 2026
Disclaimer: This article is general information for FY 2026-27 (Tax Year 2026-27) and is not tax advice. Tax rules change, and your situation may differ. Verify the latest rules on the official Income Tax Department portal or consult a chartered accountant before filing your return.
Editorial byline for eircicai income tax guides — covering the Income Tax Act, 2025, section renumbering, regime comparison, and deductions. Content is reviewed by Asuthod Rathod, CA.