HRA Exemption Calculator

The cap that actually binds is almost never the one people expect

Someone earning a basic of ₹50,000 a month, receiving ₹25,000 a month as HRA and paying ₹20,000 a month in rent in Mumbai will usually guess their exempt HRA is the full ₹3,00,000 they received. It is ₹1,80,000. The remaining ₹1,20,000 stays fully taxable, which at a 30% slab costs about ₹37,440 in tax that the payslip gives no warning about.

The reason is that Section 10(13A) does not exempt your HRA. It exempts the lowest of three separate amounts, and which one turns out to be lowest depends on the relationship between your basic pay, your rent and your city — three things that move independently of each other. Most people check only the first of the three, see a large number, and assume they are covered.

The three caps, and why each one exists

Rule 2A sets the exemption as the least of:

1. The actual HRA you received. You cannot exempt an allowance you were never paid. This is the ceiling.

2. Rent paid minus 10% of (basic + DA). The law's view is that everyone is expected to spend something on housing out of ordinary salary, and it fixes that baseline at 10% of basic. Only rent above that baseline is treated as a genuine extra burden worth relieving. This is the cap that binds for most salaried renters, and it is the one nobody checks.

3. 50% of (basic + DA) in a metro, 40% elsewhere. A blunt ceiling that stops a high rent from generating an unlimited exemption against a small basic salary.

Run the example through all three: HRA received is ₹3,00,000. Rent minus 10% of basic is ₹2,40,000 − ₹60,000 = ₹1,80,000. Half of basic is ₹3,00,000. The second condition is the smallest, so ₹1,80,000 is exempt and the rest is taxed.

What this means structurally

Because condition 2 usually decides the outcome, your exemption is driven far more by the gap between your rent and 10% of your basic than by how much HRA your employer chose to label as HRA. Two people on identical salaries, one paying ₹20,000 rent and one paying ₹35,000, get very different exemptions from the same HRA. And if your rent is below 10% of your basic, condition 2 goes to zero or negative and your entire HRA is taxable no matter how large it is.

Which cities are metros, and why the answer changed

This is the one input where the rule itself moved recently, so the year you are filing for decides the answer.

For FY 2025-26 and earlier, the metro list was the original four: Delhi, Mumbai, Kolkata and Chennai. Everywhere else was capped at 40%.

From FY 2026-27, the list expanded to eight, adding Bengaluru, Hyderabad, Pune and Ahmedabad at the 50% cap.

That is a ten-percentage-point swing in the third condition for millions of people in those four cities, and it is worth checking rather than assuming, because the same city gives a different answer depending on the assessment year you are computing for. The site's HRA metro status checker resolves it per city per financial year.

One exclusion continues to catch people out: Gurugram and Noida are not on the list. Being part of the NCR is not the same as being Delhi for this rule, and both remain non-metro at 40%.

Worked example, with the arithmetic spelled out

Take a genuinely non-metro case. Basic + DA of ₹80,000 a month (₹9,60,000 a year), HRA of ₹40,000 a month (₹4,80,000), rent of ₹45,000 a month (₹5,40,000) in Gurugram.

• Condition 1 — HRA received: ₹4,80,000
• Condition 2 — rent minus 10% of basic: ₹5,40,000 − ₹96,000 = ₹4,44,000
• Condition 3 — 40% of basic (Gurugram is not on the metro list): 0.40 × ₹9,60,000 = ₹3,84,000

The least is ₹3,84,000, so that much is exempt and ₹96,000 of the HRA is added to taxable salary. At a 30% slab plus 4% cess that is roughly ₹29,952 in tax. Note what happened: this person pays a very high rent, yet the *city classification* — not the rent, not the HRA — is what capped the claim. Had the same flat been in Chennai, the 50% cap would have been ₹4,80,000, condition 2 would have become the binding one at ₹4,44,000, and ₹60,000 more would have been exempt.

Who should use this, and when

Run the numbers when any of the inputs change rather than once a year at proof-submission time. The moments that matter: a salary revision (a higher basic raises the 10% subtraction and can quietly shrink your exemption), a move between cities (the metro/non-metro switch is worth a tenth of your basic), a rent increase or a change of flat, and the annual regime decision, since HRA exists only in the old regime.

It is also worth running before you negotiate a salary structure. If you rent, a package weighted towards basic and HRA is usually worth more after tax than the same total weighted towards other taxable allowances — though raising basic also raises your PF contribution and the 10% subtraction, so the effect is not purely one-directional.

Reading your result

The exempt figure is what drops out of your taxable salary. The taxable HRA figure is the part your employer will tax as ordinary salary, and it is the number worth acting on: if it is large, look at which of the three conditions produced it. If condition 2 is binding, your rent is low relative to your basic and nothing except paying more rent will change it. If condition 3 is binding, you are capped by city classification and extra rent buys you no further exemption at all — useful to know before you take a more expensive flat expecting a tax benefit that will not arrive.

The tax saved figure is an estimate at the slab rate you selected, grossed up for 4% cess. It is the amount you would have paid had the exemption not existed, and it only materialises if you actually file under the old regime.

Where claims go wrong

Assuming your city's status without checking the year. The list changed between FY 2025-26 and FY 2026-27, so the same city can give different answers for two consecutive returns.

Treating NCR as Delhi. Gurugram, Noida and Ghaziabad are not on the metro list.

Using CTC instead of basic. Every condition keys off basic plus DA, not gross salary and not CTC. Using a larger figure inflates conditions 2 and 3 and produces an exemption you cannot support.

Paying rent in cash with no records. Receipts alone are weak evidence. Bank transfers with a rent agreement are what survive scrutiny, and above ₹1,00,000 of annual rent you also need the landlord's PAN.

Forgetting that DA counts only when it forms part of retirement benefits. For most private-sector employees DA is either absent or not retirement-linked, in which case basic alone is the base.

Claiming for months you did not rent. If you lived rent-free with family for part of the year, that stretch earns no exemption, and the calculation should be split by period rather than annualised.

Treating this as advice for an unusual case. If you co-own the property you claim rent on, or the arrangement involves family, the position is fact-specific and worth checking with a professional before you file.

If you pay rent but get no HRA

HRA is a salary component, so two groups are shut out of Section 10(13A) entirely: the self-employed, and salaried people whose package simply has no HRA line. Both may instead claim Section 80GG, which is far less generous but not nothing.

The 80GG deduction is the least of ₹5,000 a month (₹60,000 a year), 25% of total income, or rent paid minus 10% of total income. Compare that to the example above, where an ordinary salaried renter exempted ₹1,80,000: the ceiling is roughly a third as high, and it is a deduction from income rather than an exemption from salary. The conditions are also stricter — neither you, your spouse nor your minor child may own a residential property in the city where you work, you must not be claiming HRA for any part of the year, and you must file Form 10BA declaring the arrangement.

Like HRA, 80GG exists only in the old regime. If you fall in this group and your rent is high, the comparison worth running is not old-versus-new on slab rates alone, but old-plus-₹60,000-deduction versus new — a much narrower gap than HRA-eligible employees enjoy, and one that usually favours the new regime unless you have substantial other deductions.

There is a third case worth naming: employees who receive HRA for only part of the year, typically because of a mid-year job change or salary restructure. You cannot mix the two provisions across the same months, but you can claim HRA for the months it was paid and 80GG for the months it was not, provided the 80GG conditions hold for that stretch. Calculate each period separately rather than annualising, and keep the payslips that show when the component started or stopped.