House Rent Allowance is one of the few genuinely large tax breaks left for salaried people — but only if you file under the old tax regime, and only if you compute it correctly. The exemption is not simply the HRA your employer pays you. It is the least of three separate amounts under Section 10(13A) read with Rule 2A, and most people either overclaim (and later face a demand) or underclaim (and leave money on the table).
This guide walks through the three-part calculation with real numbers, shows how the metro/non-metro rule changes the answer, and sets out the rent-receipt, landlord-PAN and rent-to-parents rules that decide whether your claim survives scrutiny. Test your own figures alongside on our Income Tax Calculator.
First, the bottom line: HRA is old-regime only
Under the new tax regime — the default from FY 2023-24 — the HRA exemption is not available. If you want to claim HRA, you must opt for the old regime when filing. So the first decision is regime choice; the HRA computation matters only if the old regime wins for you overall. Everything below assumes the old regime.
The three-part calculation: exemption is the least of three
Your exempt HRA is the lowest of these three figures:
- (a) the actual HRA received from your employer;
- (b) rent actually paid minus 10% of salary;
- (c) 50% of salary if you live in a metro city (Delhi, Mumbai, Kolkata, Chennai), or 40% of salary if you live anywhere else.
Here “salary” has a specific meaning: Basic pay + Dearness Allowance (to the extent it forms part of retirement benefits) + commission calculated as a fixed percentage of turnover. It does not include other allowances, bonuses or perquisites. The calculation is done for the exact period during which you paid rent — so if your salary changed or you moved cities mid-year, you compute it in parts.
Worked example: the metro vs non-metro difference
Take Priya, FY 2025-26, old regime. Her annual figures: Basic salary Rs. 6,00,000, DA nil, HRA received Rs. 3,60,000 (Rs. 30,000 a month), and rent paid Rs. 35,000 a month = Rs. 4,20,000 for the year. Here is how the three limbs compare depending on where she lives.
| Limb | If in Mumbai (metro) | If in Pune (non-metro, FY 2025-26) |
|---|---|---|
| (a) Actual HRA received | Rs. 3,60,000 | Rs. 3,60,000 |
| (b) Rent paid − 10% of salary (4,20,000 − 60,000) |
Rs. 3,60,000 | Rs. 3,60,000 |
| (c) 50% / 40% of salary | Rs. 3,00,000 | Rs. 2,40,000 |
| Exempt HRA (least of three) | Rs. 3,00,000 | Rs. 2,40,000 |
| Taxable HRA (3,60,000 − exempt) | Rs. 60,000 | Rs. 1,20,000 |
Same salary, same rent, same HRA — but living in a metro exempts Rs. 60,000 more, simply because the third limb allows 50% instead of 40%. This is why the metro/non-metro classification is worth getting right.
Which cities count as “metro”?
For FY 2025-26 (AY 2026-27), the 50% limb applies to only four cities: Delhi, Mumbai, Kolkata and Chennai. Every other city — including Bengaluru, Hyderabad, Pune, Gurgaon, Noida and Ahmedabad — is treated as non-metro and gets 40%. This is a settled position under Rule 2A and is what you should use for your current return.
A development to watch: there is a proposal, associated with the Income-tax Rules framed under the new Income-tax Act 2025, to extend the 50% category to eight cities by adding Bengaluru, Hyderabad, Pune and Ahmedabad with effect from FY 2026-27. As of now this is best treated as a change to confirm once officially notified — it does not apply to FY 2025-26. Do not apply 50% to those four cities for the return you file this year.
Rent receipts, and the landlord-PAN rule
To claim HRA you must actually pay rent and be able to prove it. Keep monthly rent receipts and, ideally, a rent agreement and proof of payment (bank transfer rather than cash, which is far easier to defend). Two documentation rules trip people up:
- Landlord PAN: if your total rent for the year exceeds Rs. 1,00,000 (i.e. more than about Rs. 8,333 a month), you must report your landlord’s PAN to your employer to claim HRA through payroll. If the landlord has no PAN, obtain a signed declaration to that effect (with Form 60). Without the PAN or declaration, the employer can refuse the exemption and deduct higher TDS.
- TDS on rent (Section 194-IB): if you pay rent of more than Rs. 50,000 per month, you as the tenant must deduct TDS at 2% (rate applicable since 1 October 2024) once a year, and deposit it. Many high-rent tenants miss this and face interest and penalty.
Paying rent to your parents
You can legitimately claim HRA on rent paid to your parents if the arrangement is genuine — but the tax department scrutinises this closely, so it must be real, not a paper entry. To make it stand up:
- The property must actually be owned by the parent you pay (not by you).
- Rent should be paid by bank transfer, at a reasonable market rate, with receipts.
- Your parent must declare this rent as income in their return under “Income from House Property” — where they also get the 30% standard deduction, so a modest overall tax cost.
Done properly, this can shift income to a parent in a lower slab while you claim a valid exemption. Done carelessly — no ownership, no payment trail, no disclosure — it is exactly the kind of claim that gets disallowed. Note you cannot claim HRA on rent paid to your spouse.
No HRA in your salary? Section 80GG
If you pay rent but your salary has no HRA component (or you are self-employed), the old regime still offers Section 80GG — a deduction of the least of Rs. 5,000 a month, 25% of total income, or rent paid minus 10% of total income. It is far smaller than HRA but worth claiming if you qualify. This too is unavailable in the new regime.
Key takeaways
- HRA exemption is available only in the old tax regime — decide your regime first.
- The exemption is the least of three amounts, not the full HRA your employer pays.
- “Salary” for HRA means Basic + DA (forming part) + commission on turnover — nothing else.
- For FY 2025-26 only Delhi, Mumbai, Kolkata and Chennai qualify for the 50% limb; all other cities get 40%.
- Report the landlord’s PAN if annual rent exceeds Rs. 1,00,000; deduct 2% TDS if monthly rent exceeds Rs. 50,000.
- Rent to parents is allowed if the ownership, payment trail and their income disclosure are genuine.
Frequently Asked Questions
Can I claim HRA in the new tax regime?
No. The HRA exemption under Section 10(13A) is available only in the old regime. If HRA is a large part of your package, compare both regimes on our Income Tax Calculator before you file.
Is the whole HRA my employer pays exempt?
Rarely. The exempt amount is the least of the three limbs. Any HRA above that least figure is taxable salary, as the worked example shows.
Which cities are “metro” for HRA in FY 2025-26?
Only Delhi, Mumbai, Kolkata and Chennai qualify for the 50% rate. Bengaluru, Hyderabad, Pune, Ahmedabad and the NCR suburbs are non-metro (40%) for this year, despite a proposal to add some of them from FY 2026-27.
Do I need my landlord’s PAN?
Yes, if your annual rent is more than Rs. 1,00,000. If the landlord has no PAN, get a written declaration with Form 60. Without either, your employer may deny the exemption in payroll.
Can I pay rent to my parents and still claim HRA?
Yes, if it is genuine: the parent owns the property, you pay by bank transfer at a fair rent, and the parent reports it as income. You cannot claim HRA on rent paid to your spouse. When in doubt, confirm the structure through Ask a CA – Income Tax & TDS.