Quick answer: HRA exemption is the lowest of three amounts: the HRA you received, rent paid minus 10% of salary, and 50% of salary (40% outside the listed cities). Salary here means basic plus DA. From FY 2026-27, Bengaluru, Hyderabad, Pune and Ahmedabad join Delhi, Mumbai, Kolkata and Chennai at 50%. The exemption is available only in the old tax regime.
Use the HRA calculator to get your figure instantly. Read on for the details, examples and the documents your employer will ask for.
Who can claim HRA exemption
You can claim it if all of these are true:
- You are a salaried employee and your salary includes house rent allowance
- You live in rented accommodation and actually pay rent
- You do not own the house you live in
- You file under the old tax regime
If you choose the new regime, HRA is fully taxable. That single fact often decides which regime is better for people who pay high rent.
HR, GPS attendance, shifts, leave, payroll, tax declarations, onboarding, engagement, projects and timesheets — one employee record behind all of it.
Start free See the demoThe lowest-of-three rule
The exempt amount for the year is the smallest of:
| # | Amount |
|---|---|
| 1 | Actual HRA received |
| 2 | Rent paid − 10% of salary |
| 3 | 50% of salary in the eight listed cities, 40% elsewhere |
Salary for this purpose is basic pay + dearness allowance (where it forms part of retirement benefits) + commission as a fixed percentage of turnover. It is calculated for the period you actually lived in rented accommodation.
Whatever part of HRA is not exempt is taxable as salary.
What changed in 2026
Until FY 2025-26, only Delhi, Mumbai, Kolkata and Chennai qualified for the 50% limit. The Income-tax Rules effective 1 April 2026 add Bengaluru, Hyderabad, Pune and Ahmedabad. Millions of employees in these technology and manufacturing hubs pay rents comparable to the older metros, and the third limit was often the one holding their exemption down.
Example 1: rent in Bengaluru
| Per month | Amount |
|---|---|
| Basic + DA | ₹60,000 |
| HRA received | ₹30,000 |
| Rent paid | ₹32,000 |
- HRA received: ₹30,000
- Rent − 10% of salary: 32,000 − 6,000 = ₹26,000
- 50% of salary: ₹30,000
Exempt HRA = ₹26,000 a month (₹3,12,000 a year). Taxable HRA = ₹4,000 a month.
For FY 2025-26, the third limit would have been 40%, ₹24,000, so the exemption would have been ₹2,88,000. The change saves this employee ₹24,000 of taxable income a year.
Example 2: low rent
| Per month | Amount |
|---|---|
| Basic + DA | ₹50,000 |
| HRA received | ₹20,000 |
| Rent paid, Lucknow | ₹12,000 |
- HRA received: ₹20,000
- Rent − 10%: 12,000 − 5,000 = ₹7,000
- 40% of salary: ₹20,000
Exempt HRA = ₹7,000 a month. Here the second limit binds: when rent is modest compared with salary, paying more HRA does not help.
Example 3: moved mid-year
An employee lived with parents (no rent) from April to September and rented a flat in Pune from October. The exemption is worked out only for October to March, using the salary, HRA and rent for those six months, and the 50% limit applies because Pune is now a listed city.
Getting the most from HRA
- Match rent to salary. Rent below 10% of salary gives no exemption at all.
- Check the regime. Add up HRA exemption, 80C, 80D and home loan interest. If the total is modest, the new regime's lower rates and higher rebate often win. Compare both in the in-hand salary calculator.
- Declare early. Give your rent details at the start of the year so less TDS is deducted monthly, instead of claiming a refund later.
Paying rent to parents or a spouse
Paying rent to a parent who owns the house is allowed if the arrangement is genuine: transfer money from your bank account, sign a rent agreement, and your parent must show the rent as income in their return. Rent paid to a spouse is usually challenged because it is hard to show a genuine landlord–tenant relationship.
Proofs your employer will ask for
| Document | When needed |
|---|---|
| Rent receipts | Commonly required by employer policy, typically monthly or quarterly |
| Rent agreement | Recommended, often required for higher rents |
| Landlord PAN | Mandatory when annual rent exceeds ₹1 lakh |
| Declaration if landlord has no PAN | When annual rent exceeds ₹1 lakh and the landlord does not have a PAN |
| Relationship with landlord | Disclosure is now asked for in the employee declaration form |
A rent receipt should show the tenant's name, landlord's name and address, the rented property's address, the period, amount, mode of payment and the landlord's signature. Cash rent is not illegal, but bank transfers are far easier to defend.
If you missed declaring to your employer
You can still claim the exemption when filing your income tax return under the old regime. Keep the same proofs ready, because the return may be examined later.
Common mistakes
- Using CTC or gross salary instead of basic + DA for the 10% and 50%/40% limits
- Claiming the 50% rate for a city not on the list
- Claiming HRA after choosing the new regime
- Claiming for months you did not pay rent
- Not giving landlord PAN when annual rent crosses ₹1 lakh
HRA in the salary structure
HRA is usually set at 40% or 50% of basic pay, matching the tax limit for the employee's city. Setting it higher does not increase the exemption, because the third limit caps it, and a much lower HRA can leave tax savings on the table for employees who pay high rent. When companies restructure salaries so basic is at least half of CTC under the labour codes, HRA often rises too, and the exemption limits rise with basic. Review the structure for employees in Bengaluru, Hyderabad, Pune and Ahmedabad this year, because the 50% limit may justify a higher HRA component for them.
A month-by-month view
Employers calculate the exemption monthly for TDS, while the law looks at the year. If rent or salary changes mid-year, say after an appraisal in July, work out each period separately and add them up. The same applies when an employee moves from a non-listed city to a listed one: use 40% for the months before the move and 50% after it.
| Period | Basic + DA | HRA | Rent | City limit | Exempt per month |
|---|---|---|---|---|---|
| Apr–Jun | ₹50,000 | ₹20,000 | ₹18,000 | 40% (Jaipur) | ₹13,000 |
| Jul–Mar | ₹55,000 | ₹27,500 | ₹30,000 | 50% (Pune) | ₹24,500 |
Total exemption for the year = 3 × ₹13,000 + 9 × ₹24,500 = ₹2,59,500.
For HR and payroll teams
Collecting rent declarations, checking PAN rules and recalculating TDS for hundreds of employees every quarter is where errors creep in. MizUp BMS lets employees record their tax regime and HRA details in one place, so HR can review declarations before running payroll and issuing salary slips.
Frequently asked questions
Which cities qualify for 50% HRA exemption?
From FY 2026-27: Delhi, Mumbai, Kolkata, Chennai, Bengaluru, Hyderabad, Pune and Ahmedabad. All other cities use 40%.
Can I claim HRA under the new tax regime?
No. The HRA exemption is available only under the old regime.
What if my employer does not pay HRA?
Salaried employees without HRA, and self-employed people, may claim a separate deduction for rent paid under the old regime, subject to its own limits and conditions.
Can I claim HRA and a home loan together?
Yes, if you live in a rented house and the house you own is elsewhere or not yet occupied, and you meet the conditions for both.
Are rent receipts compulsory?
Employers usually ask for them when monthly rent exceeds a threshold set in their policy. Bank transfers and a rent agreement are stronger evidence than cash receipts.
