The lowest-of-three rule
House rent allowance is partly tax-free if you actually pay rent for the home you live in. The tax-free part is the smallest of these three amounts for the year:
- The HRA your employer actually paid you
- Rent paid minus 10% of salary
- 50% of salary if you live in one of the eight listed cities, otherwise 40%
"Salary" in this rule means basic pay plus dearness allowance, and commission if it is a fixed percentage of turnover. It does not include HRA itself, bonuses or other allowances. Whatever HRA is left after the exemption is taxable.
What changed for FY 2026-27
From 1 April 2026 the 50% limit extends from the four traditional metros to Bengaluru, Hyderabad, Pune and Ahmedabad. If you rent in one of these cities and pay a high rent, your exemption can rise noticeably. Use the financial-year selector in the calculator to compare.
Example
| Item (per month) | Amount |
|---|---|
| Basic + DA | ₹60,000 |
| HRA received | ₹30,000 |
| Rent paid, Bengaluru | ₹32,000 |
| Rent minus 10% of salary | ₹26,000 |
| 50% of salary (FY 2026-27) | ₹30,000 |
| Exempt HRA | ₹26,000 a month, ₹3,12,000 a year |
In FY 2025-26 the same employee in Bengaluru would have been limited to 40% of salary, ₹24,000 a month.
HRA only helps in the old regime, so compare both regimes with the in-hand salary calculator before you decide. The HRA exemption guide covers proofs, rent to relatives and common mistakes.
Frequently asked questions
How is HRA exemption calculated?
The exemption is the lowest of three figures: HRA actually received, rent paid minus 10% of salary, and 50% of salary in the eight listed cities or 40% elsewhere. Salary means basic plus DA.
Which cities get 50% HRA exemption from FY 2026-27?
Delhi, Mumbai, Kolkata, Chennai, Bengaluru, Hyderabad, Pune and Ahmedabad. Before FY 2026-27 only the first four qualified.
Can I claim HRA in the new tax regime?
No. HRA exemption is available only if you choose the old tax regime.
What if I pay rent to my parents?
It is allowed if you genuinely pay rent and they show it as income. Keep a rent agreement and bank transfer records.
Do I need the landlord PAN?
Yes, when annual rent is more than ₹1 lakh you must give the landlord PAN to your employer.
