How HRA exemption works
House Rent Allowance (HRA) received from your employer is partly or fully exempt from tax under Income Tax Act §10(13A) read with Rule 2A of the Income Tax Rules. The exempt amount is the least of three limits computed monthly:
| Rule | Amount |
|---|---|
| Rule 1 — Actual HRA | HRA component on your payslip |
| Rule 2 — Rent minus 10% | Rent paid − 10% × (Basic + DA) |
| Rule 3 — City cap | 50% × (Basic + DA) for metro · 40% for non-metro |
The excess HRA above the exemption is taxable as salary income.
Formula (monthly):
Exempt HRA = min(
actual HRA received,
rent paid − 10% × (Basic + DA),
50% or 40% × (Basic + DA)
)
Multiply by 12 for the annual exemption figure.
Worked example — metro filer
Inputs: Basic ₹50,000 · DA ₹0 · HRA received ₹25,000 · Rent paid ₹20,000 · City: Metro
| Limit | Calculation | Amount |
|---|---|---|
| Actual HRA | — | ₹25,000 |
| Rent − 10% basic | ₹20,000 − ₹5,000 | ₹15,000 |
| 50% of basic | 50% × ₹50,000 | ₹25,000 |
| Exempt (minimum) | ₹15,000/month |
Annual exemption: ₹15,000 × 12 = ₹1,80,000. Taxable HRA: ₹25,000 − ₹15,000 = ₹10,000/month.
Documentation required
You must submit documentary proof to your employer before they process the exemption in Form 12BB:
- Rent receipts for each month (or bank transfer statements showing monthly rent payments)
- Landlord’s PAN if total annual rent exceeds ₹1,00,000 (mandatory since AY 2014-15)
- Rental agreement if renting from a relative (parent, sibling)
If your employer does not process the exemption, you can claim it directly when filing your ITR under Schedule S (Salary) — the same three-rule test applies.
Bridges
The HRA exemption interacts directly with your choice of tax regime. Under the new regime §115BAC, HRA exemption is not available at all — use the Old vs New Regime Calculator to model both scenarios with and without HRA before deciding.
If you own a home in another city and take a home loan, you may also claim Section 24(b) home loan interest deduction simultaneously. The Income Tax Calculator lets you combine HRA (via gross income reduction) with all other deductions in a single tax computation.
Related glossary entries
- EMI — if you pay a home loan EMI in your home city, the interest component is deductible under Section 24(b), potentially alongside HRA if you rent in your work city