Tax · 7 min read
HRA exemption: how it is calculated and how to claim it
If you pay rent and earn HRA, you are likely under-claiming. Here is the exact formula, the proof you need, and the mistakes that cost salaried Indians thousands.
Krish Dalal
Founder and editor, PaisaExpert. Master's in Business Management, SP Jain School of Global Management, London. · Last updated 2026-06-09
House Rent Allowance is one of the largest tax breaks a salaried renter gets, and one of the most commonly under-claimed. The rules are not hard, but the formula trips people up because the exemption is not simply 'your HRA' or 'your rent'. It is the smallest of three specific numbers, and knowing which one binds for you is the whole game. Before you rely on it, confirm you are on the old regime, because HRA does not exist under the new one. If you are unsure which suits you, run both through the income tax calculator first.
The three-number formula
Your exempt HRA is the least of these three. Whichever is smallest is your tax-free amount, and the balance of your HRA is added back to your taxable salary.
- The actual HRA component in your salary for the year.
- Annual rent you paid, minus 10 percent of your annual basic salary.
- 50 percent of your basic salary if you live in a metro (Delhi, Mumbai, Kolkata, Chennai), or 40 percent if you live anywhere else.
Take Priya in Bengaluru, basic salary ₹6 lakh, HRA ₹3 lakh, paying rent of ₹25,000 a month (₹3 lakh a year). The three numbers are: actual HRA ₹3,00,000; rent minus 10 percent of basic, which is ₹3,00,000 minus ₹60,000 equals ₹2,40,000; and 40 percent of basic (Bengaluru is non-metro for HRA) equals ₹2,40,000. The least is ₹2,40,000, so that much of her HRA is tax-free and the remaining ₹60,000 is taxed.
Proof you need to keep
- Rent receipts for the year, or a rent agreement, showing the amount and the landlord's name.
- The landlord's PAN, mandatory if your annual rent is above ₹1 lakh. If the landlord refuses, you can submit a signed declaration, but the PAN is the clean route.
- Proof of payment. Paying rent by bank transfer or UPI leaves a trail the tax department accepts far more readily than cash.
HRA sits alongside the other old-regime deductions, so once you have maximised it, look at Section 80C to take your taxable income down further. If your rent is high and your home loan is also running, you may be able to claim both HRA and the home-loan interest deduction in genuine cases, for example renting in one city while owning in another.
Frequently asked
What to do next
- Find your basic salary and HRA from your latest payslip, and your total annual rent.
- Run all three through the HRA calculator to see your exempt amount and which number is capping it.
- Collect rent receipts and the landlord's PAN if your annual rent is above ₹1 lakh.
- Confirm the old regime is actually better for you before relying on HRA, because the new regime removes it.