HRA Exemption Rules in India (AY 2026-27)

House Rent Allowance can materially reduce tax under the old regime. Use this guide as a practical summary for AY 2026-27 (FY 2025-26) and verify the final position before filing.

What this guide covers

The standard HRA exemption formula used for salaried taxpayers
What counts as salary for the formula and why metro status matters
The documents usually needed to support an HRA claim
Common situations where a claim becomes risky or incorrect

HRA Exemption Formula

HRA Exemption = MINIMUM of: 1. Actual HRA received from employer 2. Rent paid - 10% of Salary 3. 50% of Salary (Metro cities) OR 40% of Salary (Non-metro) Salary = Basic + DA (if part of retirement benefits) Metro cities: Delhi, Mumbai, Kolkata, Chennai

Example Calculation

Basic Salary: ₹50,000/month HRA Received: ₹20,000/month Rent Paid: ₹25,000/month City: Bangalore (Non-metro) Annual Calculations: 1. Actual HRA = ₹20,000 × 12 = ₹2,40,000 2. Rent - 10% Salary = (₹25,000 - ₹5,000) × 12 = ₹2,40,000 3. 40% of Salary = ₹50,000 × 40% × 12 = ₹2,40,000 Exempt HRA = ₹2,40,000 (minimum of three)

Documents Required

Rent Receipts: Monthly receipts with landlord's signature
Landlord PAN: Mandatory if annual rent exceeds ₹1,00,000
Rent Agreement: Registered or notarized agreement preferred
Bank Statements: Proof of rent payments (especially if landlord has no PAN)

Important Rules

Only in Old Regime: HRA exemption is NOT available in new tax regime
Own House: No HRA exemption if living in own house (can still claim 24(b))
Paying to Parents: Valid if parents don't own house jointly with you
Different City: Can claim HRA even if you own house in different city
No Receipt Required: Below ₹3,000/month, receipts not mandatory (but advisable)

Common Mistakes to Avoid

❌ Claiming HRA without actually paying rent
❌ Not collecting landlord PAN for rent > ₹1 lakh/year
❌ Paying rent to spouse (not allowed)
❌ Not declaring rental income if paying to parents
❌ Claiming HRA while living in own house

Frequently Asked Questions

No. HRA exemption is based on a comparison of multiple tests, and the exempt amount is the lowest of those tests, not automatically the full rent paid.

The HRA formula uses a higher salary percentage for metro cities and a lower percentage for non-metro cities, which can materially change the exemption result.

Yes. Rent receipts, rent agreement details, landlord information, and payment proof may be needed to support the claim.

No. A calculator helps with planning, but payroll treatment, documentation, and the exact salary breakup should still be checked before filing.

Sources & references

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