1How is HRA exemption calculated?
It's the least of three: actual HRA received, rent paid minus 10% of salary, and 50% of salary (metro) or 40% (non-metro). You claim the smallest of the three as exempt.
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ArticleHouse Rent Allowance is one of the most valuable salary exemptions for renters, but it's also one of the most miscalculated. Here's exactly how to calculate your HRA exemption — an old-regime benefit.
Reviewed by CA Harika Chebolu, FCA · Last updated 2026-06-13
Quick answer
HRA exemption is the least of three amounts — actual HRA, rent minus 10% of salary, or 50%/40% of salary. Here's how to work it out.
Your HRA exemption is the lowest of: the actual HRA you receive; the rent you pay minus 10% of your salary; and 50% of your salary if you live in a metro city (40% if non-metro). You compare all three and claim the smallest — that's the amount exempt from tax.
For this calculation, salary means your basic pay plus dearness allowance (and any commission based on a fixed percentage of turnover). It's not your whole CTC, so use the correct, narrower salary figure — using gross salary by mistake distorts the result.
The 50% factor applies if you live in a metro city; elsewhere it's 40%. This single difference can change your exemption meaningfully, so apply the right percentage for where you actually rent and live.
To claim HRA you should keep rent receipts, and if your annual rent exceeds Rs 1,00,000 you must report your landlord's PAN. Paying rent to a family member is allowed if it's genuine — actually paid, with a real arrangement — but it's scrutinised, so keep it clean.
HRA exemption is available only in the old regime — the new regime doesn't allow it, even if you pay rent. So factor your HRA exemption into the old-versus-new comparison: for a renter with significant HRA, it can be the deciding factor in favour of the old regime.
It's the least of three: actual HRA received, rent paid minus 10% of salary, and 50% of salary (metro) or 40% (non-metro). You claim the smallest of the three as exempt.
Basic pay plus dearness allowance (and commission based on a fixed turnover percentage) — not your full CTC or gross salary. Using the wrong, wider figure distorts the exemption.
No — HRA exemption is only available in the old regime. The new regime doesn't allow it even if you pay rent, so factor this into your regime comparison.
Want your HRA exemption maximised and your regime chosen accordingly? Write to the firm and we'll work it out.