HRA Exemption — How to Calculate and Claim: If you pay rent and receive HRA from your employer, you can claim significant tax exemption — potentially saving ₹50,000-1,50,000 in annual tax.Metro HRA: 50% of basic. Non-Metro: 40% of basic. Regime: Old Tax only. Proof: Receipts if >₹1L.
Updated: March 2026
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HRA Exemption — How to Calculate and Claim
If you pay rent and receive HRA from your employer, you can claim significant tax exemption — potentially saving ₹50,000-1,50,000 in annual tax
Metro HRA
50% of basic
Non-Metro
40% of basic
Regime
Old Tax only
Proof
Receipts if >₹1L
📊HRA Exemption Formula
HRA exemption is the LOWEST of these three amounts:
(1) Actual HRA received from employer.
(2) 50% of basic salary (metro cities — Delhi, Mumbai, Kolkata, Chennai) OR 40% of basic salary (non-metro).
(3) Actual rent paid minus 10% of basic salary.
Example: You live in Bangalore (metro). Basic: ₹50,000/month. HRA received: ₹25,000/month. Rent paid: ₹20,000/month.
(1) Actual HRA = ₹25,000. (2) 50% of basic = ₹25,000. (3) Rent - 10% basic = ₹20,000 - ₹5,000 = ₹15,000.
Lowest = ₹15,000/month = ₹1,80,000/year exempt. On ₹3 lakh total HRA received, ₹1.8 lakh is tax-free. Tax saved at 30% bracket: ₹56,160.
To maximize: Ensure your rent receipt amount is reasonable and consistent with market rates. If your rent is low relative to HRA, the exemption is capped by formula (3).
📝How to Claim HRA
1
Collect rent receipts monthly
Get signed rent receipts from your landlord — they should include: landlord's name, address, rent amount, month, and signature. If annual rent >₹1 lakh, landlord's PAN is required.
2
Submit to employer by January-February
Your employer asks for investment proofs/declarations for TDS calculation. Submit rent receipts + rental agreement + landlord's PAN (if rent >₹1 lakh/year) to the HR/payroll team.
3
Employer adjusts TDS
Based on your rent receipts, the employer calculates HRA exemption using the formula and reduces TDS accordingly. Your February-March salary will have lower tax deduction.
4
Claim in ITR if employer didn't adjust
If you didn't submit proofs to employer on time, claim HRA exemption directly in your ITR. File under 'Allowances not exempt' and calculate the exemption yourself.
❓Common HRA Questions
Paying rent to parents: Yes, you CAN pay rent to your parents and claim HRA exemption. Your parents must show this rental income in their ITR. This is a popular and legal tax-saving strategy — especially if parents have low/no income (the rent they receive may be below taxable limit).
No HRA in salary but paying rent: If your employer doesn't give HRA (common in government jobs), you can still claim deduction under Section 80GG — up to ₹5,000/month (₹60,000/year). Conditions: you, spouse, or minor child should not own a house in the city of employment.
Living in own house: If you own the house you live in, you CANNOT claim HRA exemption. But you can claim home loan interest deduction under Section 24 (up to ₹2 lakh). You can't claim both HRA and home loan interest for the same city — but if you rent in city A and own a house in city B, you can claim both.
HRA in New Tax Regime: HRA exemption is NOT available under the New Tax Regime. This is one of the biggest reasons salaried employees in metro cities (with high rents) prefer the Old Tax Regime.
❓Common Questions
🔗Related Topics
Disclaimer: HRA rules as per Income Tax Act. Available only under Old Tax Regime. Consult a CA for complex situations.