HRA Exemption Calculator

What HRA Actually Is

House Rent Allowance (HRA) is a component of your salary paid by your employer to help cover the cost of rented accommodation. For salaried Indians who don't own a home, it is one of the most powerful tax breaks available — but the exemption is rarely the full amount you receive. The Income Tax Act, through Section 10(13A) and Rule 2A, caps how much of your HRA escapes tax. Our HRA Exemption Calculator runs that formula instantly so you never overpay.

The Rule 2A Formula

Your exempt HRA is the lowest of these three figures:

1. Actual HRA received from your employer.
2. Rent paid minus 10% of basic salary (basic + dearness allowance where applicable).
3. 50% of basic salary if you live in a metro city (Delhi, Mumbai, Kolkata, Chennai), or 40% if you live anywhere else.

Whatever the smallest of the three works out to is tax-free. The remainder of your HRA is added back to your taxable income.

A Worked Example in INR

Let's take Riya, who works in Mumbai (a metro). Her annual figures are:

• Basic salary: ₹4,80,000 (₹40,000 / month)
• HRA received: ₹2,40,000 (₹20,000 / month)
• Rent paid: ₹2,16,000 (₹18,000 / month)

Now we compute the three legs:

• Leg 1 — Actual HRA: ₹2,40,000
• Leg 2 — Rent − 10% of basic: ₹2,16,000 − ₹48,000 = ₹1,68,000
• Leg 3 — 50% of basic (metro): ₹2,40,000

The lowest of the three is ₹1,68,000, so that is Riya's exempt HRA. The taxable portion is ₹2,40,000 − ₹1,68,000 = ₹72,000, which gets added to her income and taxed at her slab rate.

Notice how Leg 2 — the rent leg — is the binding constraint here. If Riya were paying higher rent, more of her HRA would become tax-free, up to the metro ceiling of ₹2,40,000.

Metro vs Non-Metro: Why It Matters

The single biggest lever in the formula is the city factor. A metro resident gets to shelter up to 50% of basic salary, while a non-metro resident is capped at 40%. For someone with a ₹4,80,000 basic, that's a difference of ₹48,000 in the ceiling. Crucially, only four cities qualify as metros for HRA — many people in Bengaluru or Hyderabad wrongly assume they qualify and over-claim.

Old Regime Only

This exemption exists only under the Old Tax Regime. The New Regime trades lower slab rates for the removal of HRA, 80C, and most other deductions. Before locking in your regime for the year, run your numbers both ways. If your HRA exemption and other deductions are large, the Old Regime often wins — pair this tool with the PPF calculator to see your combined Section 80C and HRA savings.

Documentation You Must Keep

To survive scrutiny, retain:

• Rent receipts for every month claimed.
• A rent agreement in your name.
• Your landlord's PAN if annual rent crosses ₹1,00,000.
• Bank transfer proof — paying rent in cash weakens your claim.

Smart Planning Moves

If the rent leg is limiting your exemption, two levers help: negotiating a higher HRA component in your CTC, or genuinely paying market-rate rent (including to parents who own the home, provided they declare it as income). Small structural changes at the start of the financial year can meaningfully raise your tax-free HRA across all twelve months.

The rates and city factors used here reflect FY 2025-26 (AY 2026-27). Always verify your specific situation with a qualified Chartered Accountant or the official Income Tax Department portal before filing.