The least-of-three rule
HRA exemption under Section 10(13A) and Rule 2A is not simply the HRA your employer pays. It is the lowest of three separate amounts, and whichever is smallest becomes your exempt figure — the rest is taxable.
The three limbs are: the HRA actually received; the rent you paid less 10% of basic salary plus DA; and 50% of basic plus DA if you live in a metro, or 40% if you do not.
Exemption = least of (HRA received, rent − 10% of basic+DA, 50%/40% of basic+DA)
Which cities count as metro
For HRA purposes only four cities are metros: Delhi, Mumbai, Kolkata and Chennai. These qualify for the 50% limb.
This is the single most common error in HRA calculations. Bengaluru, Pune, Hyderabad, Gurugram and Noida are all treated as non-metro at 40%, however large or expensive they are.
A worked example
Suppose your monthly basic plus DA is ₹50,000, you receive ₹20,000 of HRA and pay ₹25,000 rent in Bengaluru. The three limbs are: HRA received ₹20,000; rent minus 10% of basic = ₹25,000 − ₹5,000 = ₹20,000; and 40% of basic = ₹20,000.
All three happen to be ₹20,000 here, so the entire HRA is exempt. Change the city to Mumbai and the third limb becomes ₹25,000, but the exemption stays ₹20,000 — the lowest limb still governs.
How is HRA exemption calculated?+
It is the least of three amounts: the HRA actually received; rent paid minus 10% of basic plus DA; and 50% of basic plus DA for metro cities or 40% for non-metro. Whichever is smallest is exempt, and the balance of your HRA is taxable.
Which cities are considered metro for HRA?+
Only Delhi, Mumbai, Kolkata and Chennai qualify for the 50% limb. Bengaluru, Pune, Hyderabad, Gurugram and Noida are non-metro for HRA purposes and use 40%, regardless of their size or cost of living.
Can I claim HRA under the new tax regime?+
No. The HRA exemption is available under the old regime only. Renters with a large HRA component are among the taxpayers most likely to find the old regime cheaper overall.
Can I claim HRA if I pay rent to my parents?+
Rent paid to a parent who owns the property can qualify where the arrangement is genuine — rent is actually paid and the owner declares it as income. Documentation matters, and this is an area where a qualified tax professional is worth consulting.
Do I need a landlord PAN to claim HRA?+
Where annual rent exceeds ₹1,00,000, employers generally require the landlord’s PAN to allow the exemption through payroll. Rent receipts and proof of payment are normally expected alongside it.
What if I do not receive HRA but still pay rent?+
Section 10(13A) applies only to an HRA component in your salary. A separate provision, Section 80GG, covers some taxpayers who pay rent without receiving HRA, with its own limits and conditions.
Is Bengaluru a metro city for HRA?+
No. For HRA purposes only Delhi, Mumbai, Kolkata and Chennai are metros, so Bengaluru uses the 40% limb, not 50%. This catches a lot of people out — Bengaluru is a metro in ordinary usage and for many other purposes, but not under Rule 2A.
Can I claim HRA and a home loan deduction at the same time?+
It is possible where the facts genuinely support both — for example you own a property in one city and rent in another for work, or your own property is let out. Claiming both while living in the home you own is where problems arise. The circumstances matter, so this is worth confirming with a qualified tax professional.
Do I need rent receipts to claim HRA?+
Employers normally require them to allow the exemption through payroll, along with the landlord’s PAN where annual rent exceeds ₹1,00,000. Keeping proof of actual payment matters too — a receipt without a corresponding bank transfer is weak evidence if the claim is ever examined.
What happens to my HRA exemption if I move cities mid-year?+
The exemption is worked out for each period separately, because the rent, the HRA received and the metro or non-metro percentage may all differ. Moving from Mumbai to Pune, for instance, drops the third limb from 50% to 40% for the remaining months.