HRA Exemption — How to Calculate Under Section 10(13A) with Worked Examples

House Rent Allowance (HRA) is one of the most valuable tax exemptions available to salaried employees in India. If you live in rented accommodation and receive HRA as part of your salary, you can claim a partial or full exemption under Section 10(13A) of the Income Tax Act — but only under the old tax regime. This guide explains the formula, worked examples for both metro and non-metro cities, and the documentation you need.

What is HRA and Who Can Claim It?

HRA is a component of your Cost to Company (CTC) paid by the employer to help cover your rent. You can claim an exemption on it only if:

• You are a salaried employee (not self-employed)
• You actually live in rented accommodation
• You have opted for the old tax regime (HRA exemption is not available under the new regime)
• You are paying rent — the exemption is not available if you live rent-free or in your own property

The HRA Exemption Formula — Section 10(13A)

The exemption you can claim is the lowest of these three amounts:

1. Actual HRA received from your employer during the year
2. 50% of basic salary + DA (if you live in a metro city — Delhi, Mumbai, Kolkata, Chennai)
   or
   40% of basic salary + DA (if you live in a non-metro city)
3. Actual rent paid minus 10% of basic salary + DA

The portion of HRA that exceeds the exemption limit is added back to your taxable income.

What Counts as Basic Salary for HRA?

For HRA calculation, “basic salary” includes Basic Pay plus Dearness Allowance (DA) if DA forms part of salary for retirement benefits. It excludes allowances like conveyance, special allowance, commission, or HRA itself.

Worked Example — Metro City (Mumbai)

Suppose a salaried employee in Mumbai has the following annual figures:

• Basic salary: ₹6,00,000
• HRA received: ₹2,40,000
• Actual rent paid: ₹2,60,000

Now compute the three limits:

1. Actual HRA received = ₹2,40,000
2. 50% of basic (metro) = 50% × ₹6,00,000 = ₹3,00,000
3. Rent paid − 10% of basic = ₹2,60,000 − ₹60,000 = ₹2,00,000

HRA exemption = lowest of the three = ₹2,00,000

The remaining ₹40,000 (₹2,40,000 − ₹2,00,000) is taxable as part of salary.

Worked Example — Non-Metro City (Hyderabad)

Same employee, same figures, but based in Hyderabad (non-metro):

1. Actual HRA received = ₹2,40,000
2. 40% of basic (non-metro) = 40% × ₹6,00,000 = ₹2,40,000
3. Rent paid − 10% of basic = ₹2,60,000 − ₹60,000 = ₹2,00,000

HRA exemption = ₹2,00,000 — same result in this case, but the 40% cap (Limit 2) is lower, which can reduce the exemption in other scenarios.

Metro vs Non-Metro — Which Cities Qualify as Metro?

For HRA purposes, only four cities are considered metro: Delhi, Mumbai, Kolkata, and Chennai. All other cities — including Hyderabad, Bengaluru, Pune, Ahmedabad, and others — are classified as non-metro, and the 40% rule applies.

Paying Rent to a Relative — What You Need to Know

You can claim HRA even if you pay rent to a parent or family member, but there are important conditions:

• The rent agreement must be genuine and documented
• The relative must declare the rent received as income in their own tax return
• Rent to a spouse is generally not accepted by the Income Tax Department

Documents Required to Claim HRA

Your employer will ask for these when processing your investment declaration:

• Rent receipts for each month (stamped and signed by the landlord, with ₹1 revenue stamp if rent exceeds ₹5,000 per receipt)
• Rent agreement (lease deed) between you and the landlord
• If annual rent exceeds ₹1 lakh, your landlord’s PAN is mandatory

If you miss the declaration window with your employer, you can still claim the HRA exemption directly in your income tax return (ITR) when filing.

HRA and Home Loan — Can You Claim Both?

Yes, you can claim both HRA exemption and home loan deductions (interest under Section 24(b) and principal under Section 80C) simultaneously — but only if you genuinely live in rented accommodation while your owned property is in a different city, or if the owned property is under construction. Claiming both for the same property in the same city is not allowed and invites scrutiny.

What if Your Employer Does Not Pay HRA?

If HRA is not a component of your salary structure, you can claim a deduction under Section 80GG instead. The limit is the lowest of: ₹5,000 per month, 25% of adjusted total income, or actual rent minus 10% of income. This is less generous than 10(13A) but provides some relief.

Frequently Asked Questions

Can I claim HRA under the new tax regime?

No. HRA exemption under Section 10(13A) is only available under the old tax regime. If you opt for the new regime, the entire HRA received is taxable.

What if I do not submit rent receipts to my employer?

Your employer will deduct TDS treating the full HRA as taxable. You can still claim the exemption when filing your return by entering the correct figures in the HRA exemption field in your ITR form.

Does the HRA exemption reduce my total income or taxable income?

The exempt portion of HRA reduces your gross salary income. It reduces your total taxable income, which is then subject to slab rates and deductions.

Is there a maximum limit on HRA exemption?

There is no fixed ceiling — the formula’s three limits act as the natural cap. The exemption cannot exceed the actual HRA received, which itself is capped by your CTC structure.