MoneyDock

HRA Exemption

Calculate taxable and tax-free House Rent Allowance.

₹
₹
₹

Calculation Summary

Exempt HRA₹ 130,000
Taxable HRA₹ 70,000
*Metro cities include Delhi, Mumbai, Kolkata, and Chennai.

For salaried employees living in rented accommodation, House Rent Allowance (HRA) is one of the most significant tax-saving tools. Under Section 10(13A) of the Income Tax Act, a substantial portion of the HRA you receive can be declared tax-free, lowering your overall tax liability.

However, the calculation isn't straightforward. It depends on your salary structure, the actual rent you pay, and the city you live in.

📐 The Rule of 3 (Calculation Logic)

The Income Tax department calculates the HRA exemption as the LOWEST of the following three amounts:

  1. Actual HRA Received: The exact amount listed in your salary slip.
  2. 50% / 40% of Salary: 50% of (Basic + DA) if you live in a Metro city. 40% for Non-Metro cities.
  3. Rent - 10% of Salary: Actual Rent Paid minus 10% of (Basic + DA).

Metro vs Non-Metro Cities: The Classification

This is a common point of confusion. The government defines "Metro" strictly for HRA purposes. Only the four historical metros qualify for the 50% rule:

  • Metro (50%): Delhi, Mumbai, Kolkata, Chennai.
  • Non-Metro (40%): All other cities, including major tech hubs like Bangalore, Hyderabad, Pune, Gurgaon, and Noida.

Can I claim HRA if I pay rent to parents?

Yes! This is a legitimate tax-planning strategy. You can pay rent to your parents and claim HRA exemption. However, to satisfy the taxman, you must ensure:

  • You actually transfer the money (bank trail is preferred over cash).
  • Your parents declare this rental income in their ITR (under "Income from House Property").
  • You are not a co-owner of that property.
  • There is a formal rent agreement (optional but recommended).

Note: You cannot pay rent to your spouse and claim HRA.

Frequently Asked Questions

Is Landlord's PAN mandatory?

Yes, if your annual rent payment exceeds ₹1,00,000 (approx ₹8,333 per month), you must provide your landlord's PAN to your employer to claim the exemption.

Can I claim both HRA and Home Loan deduction together?

Yes. If you own a house in one city (and claim Home Loan benefits) but live in another city for work on rent, you can claim BOTH HRA and Section 24(b) deductions. If they are in the same city, you must prove that your owned house is too far from your workplace.

Is HRA available in the New Tax Regime?

No. The New Tax Regime (default) does not allow HRA exemption. You must opt for the Old Regime to claim this benefit.