Published: May 2026 ยท 5 min read ยท Old Tax Regime only
Note: HRA exemption is available only under the Old Tax Regime. The New Regime (default) does not allow HRA claims. If your HRA benefit is significant, it may be worth opting for the old regime โ use our calculator to compare.
HRA Exemption Calculation
The HRA exemption under Section 10(13A) is the lowest of the following three amounts:
- Actual HRA received from employer
- 50% of Basic Salary (if you live in a metro: Delhi, Mumbai, Chennai, Kolkata) or 40% of Basic Salary (non-metro cities)
- Actual rent paid minus 10% of Basic Salary
Example Calculation
Rahul lives in Hyderabad (non-metro), earns Basic โน50,000/month, HRA โน20,000/month, and pays rent of โน18,000/month:
- Actual HRA: โน20,000
- 40% of Basic (non-metro): โน20,000
- Rent paid minus 10% of Basic: โน18,000 - โน5,000 = โน13,000
- HRA exempt: โน13,000/month = โน1,56,000/year
Documents Required
- Rent receipts: Monthly receipts signed by the landlord. Must include landlord name, address, rent amount, and period.
- Rent agreement: Registered or notarised lease agreement (highly recommended though not legally mandatory for HRA)
- Landlord's PAN: Mandatory if annual rent exceeds โน1,00,000. If landlord refuses PAN, obtain a declaration.
Special Situations
- Paying rent to parents: Allowed โ and is one of the best tax-saving strategies. Your parents declare the rent as income (likely at lower tax bracket or exempt), and you claim HRA exemption. Ensure proper rent agreement and bank transfer.
- Living in own house: No HRA exemption possible. But if you have a home loan, you can claim interest deduction under Section 24(b) โ up to โน2 lakh.
- Two houses: If you own a house in one city and rent in another (e.g. own in Hyderabad, work and rent in Bangalore), you can claim both HRA and home loan benefits.
- No HRA component in salary: You can still claim deduction under Section 80GG โ up to โน5,000/month (โน60,000/year) for rent paid, subject to conditions.
- Shared accommodation: If you share a flat, the rent receipt should be in your name for the portion you pay.
Common Mistakes to Avoid
- Fake rent receipts: The tax department cross-checks rental income in landlord's return. Fake claims lead to penalties and prosecution.
- Not matching with Form 26AS: If employer reports HRA in your Form 16 but you haven't claimed exemption correctly, it triggers a mismatch.
- Cash payments above โน50,000: For rent above โน50,000/month, pay via bank transfer. Cash payments above this are not deductible under Section 40A(3).
- Not deducting TDS on rent above โน50,000: If you're paying rent above โน50,000/month as an individual/HUF, you must deduct TDS at 2% under Section 194-IB.