House Rent Allowance (HRA) exemption under Section 10(13A) of the Income Tax Act is the lowest of three amounts: the actual HRA your employer pays you, the rent you pay minus 10% of your basic salary plus dearness allowance (DA), and 50% of basic plus DA if you live in a metro city or 40% if you do not. The exemption is available only if you pay rent and only under the old tax regime. As of July 2026, salaried taxpayers filing ITR-1 or ITR-2 for FY 2025-26 have until 31 July 2026 to file, which is when most HRA questions come up.
Chapter 1How is HRA exemption calculated in India?
The exempt portion of HRA is the least of three figures, calculated for the period you actually paid rent: actual HRA received, rent paid minus 10% of salary, and 50% of salary in a metro (40% in a non-metro). "Salary" here means basic pay plus DA (if it counts for retirement benefits) plus any commission earned as a fixed percentage of turnover. You cannot pick the figure that suits you; the law fixes the exemption at the lowest one.
A worked example makes this concrete. The numbers below are illustrative:
| Item (annual) | Amount |
|---|---|
| Basic salary (₹50,000 x 12) | ₹6,00,000 |
| HRA received (₹20,000 x 12) | ₹2,40,000 |
| Rent paid in Bengaluru (₹18,000 x 12) | ₹2,16,000 |
The three tests:
- Actual HRA received: ₹2,40,000
- Rent minus 10% of salary: ₹2,16,000 - ₹60,000 = ₹1,56,000
- 40% of salary (Bengaluru is a non-metro for HRA): ₹2,40,000
The lowest figure is ₹1,56,000, so that much of the HRA is exempt and the remaining ₹84,000 is taxed as salary. If the same person paid the same rent in Mumbai, test 3 would become ₹3,00,000, but the exemption would still be ₹1,56,000 because test 2 remains the lowest.
If your rent, salary or city changed during the year, the calculation is done month by month or period by period, not on annual totals alone.
Chapter 2Which cities count as metro for HRA?
Only four cities qualify for the 50% limit under Rule 2A: Delhi, Mumbai, Kolkata and Chennai. Bengaluru, Hyderabad, Pune, Gurugram, Noida and Ahmedabad are all treated as non-metros for HRA, capped at 40% of basic plus DA, even though rents there rival the four metros. This classification has not been updated despite repeated industry requests, and it remains unchanged for FY 2025-26.
Chapter 3Can you claim HRA under the new tax regime?
No. The HRA exemption under Section 10(13A) is available only in the old tax regime. The new regime, which has been the default since FY 2023-24, taxes the entire HRA as part of salary and instead offers lower slab rates and a ₹75,000 standard deduction for FY 2025-26. Whether the old regime with HRA beats the new regime depends on your rent, your other deductions and your income level; the comparison is worked through in old vs new regime for FY 2025-26.
What documents support an HRA claim?
The exemption rests on proof that rent was actually paid: rent receipts, a rent agreement, and ideally bank transfer records. Two thresholds matter for FY 2025-26. If annual rent exceeds ₹1,00,000, the employee must report the landlord's PAN to the employer. And employers typically ask for rent receipts when monthly rent exceeds ₹3,000, though keeping receipts at any rent level is standard practice.
Paying rent to parents is permitted under the rules if the arrangement is genuine: the parent owns the house, the rent is actually transferred, and the parent reports it as rental income in their own return. The same logic applies to any related-party landlord.
Does rent above ₹50,000 a month require TDS?
Yes. Under Section 194-IB, an individual paying monthly rent above ₹50,000 to a resident landlord must deduct TDS at 2% (as of July 2026; the rate was cut from 5% to 2% effective 1 October 2024). The deduction happens once a year, from the rent for the last month of the financial year or the last month of tenancy, and is deposited using Form 26QC. If the landlord does not provide a PAN, the rate jumps to 20%. Skipping this deduction does not cancel the HRA exemption by itself, but it creates a separate compliance default with interest and late fees.
Chapter 6What if your salary has no HRA component?
Taxpayers who pay rent but receive no HRA - or who are self-employed - can look at Section 80GG instead, again only under the old regime. The deduction is the least of ₹5,000 per month (₹60,000 a year), 25% of adjusted total income, and rent paid minus 10% of adjusted total income. It requires filing Form 10BA and is unavailable if the taxpayer, their spouse or minor child owns a house in the city where they live and work.
Chapter 7How does HRA appear when filing the ITR?
The exempt HRA appears in Part B of Form 16 as an exemption under Section 10, and flows into the ITR as exempt income while the taxable portion stays inside salary. Filers cross-check the figure against their own calculation before submitting, since employers compute it from the declarations given to them, not from what was actually paid. For AY 2026-27, the due date is 31 July 2026 for ITR-1 and ITR-2, and 31 August 2026 for ITR-3 and ITR-4 in non-audit cases, as per the Income Tax Department's calendar as of July 2026. The mechanics of filing are covered in how to file your ITR and the AY 2026-27 season basics.
How Nora helps
Nora can read your salary structure from your payslips, run the three-way HRA test on your actual numbers, and show how the exemption changes your old-vs-new regime comparison for the year - so the regime choice in your ITR is based on arithmetic, not habit.
App · coming soonWhat this means for you
HRA is a formula, not a negotiation: the lowest of three numbers, available only in the old regime, and only for rent actually paid and documented. Knowing which city bucket you fall in, what the 10%-of-salary haircut does to your claim, and which paperwork thresholds apply (₹1 lakh for landlord PAN, ₹50,000 a month for TDS) lets you read your Form 16 and your ITR with clear eyes this filing season. This is how the rules work as of FY 2025-26; the education-only note at the top of every Artha guide applies here too.