calc / tax / HRA

HRA Exemption

Your HRA isn't tax-free by default — the exemption is the least of three numbers, and it's usually the rent limb that binds. This shows all three, which one wins, and what stays taxable.

Compute the exemption Section 10(13A)

Exempt HRA / month

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Taxable HRA / month

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Annual exemption

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§1The least-of-three rule

Section 10(13A) exempts the least of three amounts — computed monthly (or for each period in which salary, rent or city changed), then annualised:

(a) actual HRA received (b) 50% of basic+DA in a metro (40% non-metro) (c) rent paid − 10% of basic+DA exempt HRA = least of (a), (b), (c) taxable HRA = HRA received − exempt

₹50,000 basic+DA · ₹20,000 HRA · ₹18,000 rent · metro

(a) = ₹20,000 (b) = 50% × 50,000 = ₹25,000 (c) = 18,000 − 10% × 50,000 = ₹13,000 ← least, so it binds Exempt = ₹13,000/month = ₹1,56,000/year Taxable = 20,000 − 13,000 = ₹7,000/month = ₹84,000/year

Limb (c) is the usual winner — it's the only one that depends on the rent you actually pay, and the 10% haircut on basic+DA drags it down fast. Pay no rent, and (c) goes to zero or below: no exemption at all.

§2The gotchas

Old regime only

The new tax regime — the default since FY 2023-24 — has no HRA exemption. The lower slab rates may still beat the old regime even after a full HRA claim, so run both regimes before you assume this exemption is worth switching for.

"Metro" is a list of four, frozen in time

Only Delhi, Mumbai, Kolkata and Chennai qualify for 50%. Bengaluru, Hyderabad, Pune, Gurugram and Noida — whatever their rents — are non-metro at 40% in the eyes of the rule. Yes, this is widely considered absurd; no, your employer's payroll software won't bend it.

PAN above ₹1 lakh, and rent to parents must be real

Annual rent above ₹1,00,000 requires the landlord's PAN in your employer declaration. Paying rent to your parents is perfectly legal — but it must be genuine: bank transfers, ideally a rent agreement, and they must declare it as income in their returns. Cash "rent" with back-dated receipts is the most routinely disallowed claim in salary scrutiny.

DA counts only when it's retirement-grade

Dearness allowance enters "basic+DA" only if it forms part of retirement benefits (i.e., it counts for PF and gratuity). Most private-sector CTCs have no such DA — then the base is basic salary alone, which shrinks limb (b) and raises limb (c).

§3Related

Renting while you repay a home loan? You can claim both HRA and Section 24(b) home-loan interest in genuine cases — job in a different city than the owned house, or the owned house is let out. Check the loan side on the home loan EMI calculator.