HRA (House Rent Allowance) exemption is one of the most valuable tax benefits for salaried employees in India. Under Section 10(13A) of the Income Tax Act, the HRA portion of your salary is partially or fully exempt from tax — but only under the Old Tax Regime and only if you actually pay rent.

The 3-Rule HRA Exemption Formula

The HRA exemption is the minimum of these three amounts:

  1. Actual HRA received from employer
  2. 50% of Basic Salary (metro cities: Delhi, Mumbai, Chennai, Kolkata) OR 40% of Basic (all other cities)
  3. Actual rent paid minus 10% of Basic Salary

HRA Exemption = MIN(Actual HRA, 50%/40% of Basic, Rent Paid − 10% of Basic)

Example Calculation

Mumbai employee: Basic ₹50,000/month, HRA received ₹25,000, Rent paid ₹20,000

  • Rule 1: Actual HRA = ₹25,000
  • Rule 2: 50% of Basic (Mumbai=metro) = ₹25,000
  • Rule 3: Rent − 10% of Basic = ₹20,000 − ₹5,000 = ₹15,000
  • HRA Exemption = MIN(25,000, 25,000, 15,000) = ₹15,000/month = ₹1,80,000/year

Metro vs Non-Metro Cities

CityCategoryHRA Exemption Rate
Delhi, Mumbai, Chennai, KolkataMetro50% of Basic
Bangalore, Hyderabad, Pune, AhmedabadNon-Metro40% of Basic
All other citiesNon-Metro40% of Basic
Note: HRA exemption is only available under the Old Tax Regime. Under the New Tax Regime, HRA is fully taxable. If your HRA is significant, this is often the key reason to stay on the Old Regime.

Rent Receipt Requirements

  • Rent receipts required if annual rent exceeds ₹1 lakh
  • Landlord's PAN mandatory if annual rent exceeds ₹1 lakh
  • Rent agreement recommended as supporting document
  • Online UPI/bank transfer records accepted as payment proof

Can You Claim HRA if Paying Rent to Parents?

Yes — you can pay rent to parents and claim HRA exemption. Requirements: you must actually transfer the rent amount to parents' bank account, parents must show it as rental income in their ITR, and the property must be owned by the parent. A formal rent agreement is strongly recommended. Use our HRA Calculator for your exact exemption.