How is HRA exemption calculated? A worked example
By Vijay Singh Sinhmar · Fintech automation specialist, 8 years in finance · Published 2026-10-11
The exempt part of your HRA is the lowest of three amounts: the HRA you actually receive, the rent you pay minus 10% of basic plus DA, and 50% of basic plus DA in eight named cities or 40% elsewhere. On ₹50,000 basic, ₹20,000 HRA and ₹25,000 rent a month in Mumbai, ₹20,000 is exempt. It is available in the old regime only.
Educational information, not investment advice · Muktify is not SEBI-registered
HRA Exemption Calculator
How much of your house rent allowance is tax-free — the least of three statutory limits.
The basic + dearness allowance components of your salary
The HRA component in your salary structure
Actual rent paid for your home
From 1 Apr 2026 (Rule 279): 50% of basic in these eight cities, 40% anywhere else
Tax-free HRA
₹13,000/mo
₹1.56L exempt per year · ₹7,000/mo of your HRA stays taxable
The exemption is the least of these three
Old regime only. The new tax regime does not allow HRA exemption. Compare both regimes with our Tax Regime Calculator →
Assumes the same salary and rent all 12 months. Rent above ₹1L/yr requires the landlord's PAN.
Educational estimate on your inputs — not tax advice. Verify with a tax professional before filing.
Not investment advice. Not SEBI-registered.
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The three limits
The rule compares three figures and exempts the smallest. First, the HRA your employer actually pays you. Second, the rent you pay minus 10% of your basic pay plus DA. Third, 50% of basic plus DA if you live in Mumbai, Kolkata, Delhi, Chennai, Hyderabad, Pune, Ahmedabad or Bengaluru, and 40% anywhere else.
Whatever HRA is left above the smallest figure is taxed as salary. The calculation can be done monthly or for the year; the answer is the same as long as all three figures cover the same period.
Exempt HRA = lowest of (HRA received, rent − 10% of basic + DA, 50% or 40% of basic + DA)
Four worked examples
Each uses ₹50,000 a month of basic plus DA, so 10% of it is ₹5,000. In the first, the HRA itself is the lowest figure and all of it is exempt. In the second, rent is lower, so rent minus ₹5,000 sets the limit and ₹7,000 a month of the HRA is taxed.
The third and fourth are the same salary and rent in two places. Outside the eight cities the 40% limit of ₹20,000 binds and ₹5,000 a month is taxed; in one of them the limit rises to ₹25,000 and the whole HRA is exempt.
| HRA | Rent | City | Rent − 10% | 50% / 40% of basic | Exempt |
|---|---|---|---|---|---|
| ₹20,000 | ₹25,000 | One of the eight | ₹20,000 | ₹25,000 | ₹20,000 |
| ₹20,000 | ₹18,000 | One of the eight | ₹13,000 | ₹25,000 | ₹13,000 |
| ₹25,000 | ₹30,000 | Elsewhere | ₹25,000 | ₹20,000 | ₹20,000 |
| ₹25,000 | ₹30,000 | One of the eight | ₹25,000 | ₹25,000 | ₹25,000 |
What it saves in tax
On a ₹15,00,000 salary in the old regime with no other deductions, the first example exempts ₹2,40,000 a year and lowers the tax from ₹2,57,400 to ₹1,82,520, a saving of ₹74,880. The second exempts ₹1,56,000 and saves ₹48,672. The fourth exempts ₹3,00,000 and saves ₹93,600.
The new regime allows no HRA exemption at all; on the same ₹15,00,000 it charges ₹97,500 whatever rent you pay. So the exemption only helps if the old regime, with all your deductions, comes out lower for you in FY 2026-27.
What you need to claim it
You need to actually pay rent for a home you live in, and you cannot claim it on a home you own and live in. Keep rent receipts or a rental agreement; your employer asks for proof, and where the annual rent is above ₹1,00,000 they will also ask for your landlord’s PAN.
Frequently asked questions
Which cities get the 50% HRA limit?
In FY 2026-27, Mumbai, Kolkata, Delhi, Chennai, Hyderabad, Pune, Ahmedabad and Bengaluru. Everywhere else the third limit is 40% of basic pay plus DA.
Is HRA exemption available in the new tax regime?
No. The new regime taxes the whole HRA as salary. The exemption exists only in the old regime, alongside its other deductions.
What if my rent is less than 10% of my basic?
Then rent minus 10% of basic is zero, so nothing is exempt and the whole HRA is taxed, even though you pay rent.
Does paying more rent always increase the exemption?
Only while the rent limit is the lowest of the three. Once the HRA received or the 50% or 40% limit is lower, extra rent changes nothing.
Related
- HRA calculator →
- Do I need my landlord’s PAN to claim HRA? →
- Can I claim HRA if I pay rent to my parents? →
- Is Bengaluru a metro city for HRA? →
- Can I claim HRA and home loan together? →
Last updated 2026-10-11. Figures reflect FY 2026-27 and are educational estimates, not advice. Muktify is not SEBI-registered and never recommends or ranks any instrument.
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