How HRA Exemption Is Calculated for Salaried Employees in India
House Rent Allowance (HRA) can reduce the salary amount subject to tax, but the exemption is not simply the allowance shown in your payslip or a flat share of rent. You compare three figures for the period you actually occupied rented accommodation and take the lowest. From 1 April 2026, the notified Income-tax Rules, 2026 set out the current calculation in Rule 279, including an expanded list of locations eligible for the 50% salary limit [1]. Here is how to calculate it, what records to keep and where employees commonly go wrong.
The three-part HRA exemption formula
For the qualifying period, calculate each of these amounts and take the least: (1) HRA actually received; (2) rent actually paid minus 10% of salary; and (3) 50% of salary for a home in Mumbai, Kolkata, Delhi, Chennai, Hyderabad, Pune, Ahmedabad or Bengaluru, or 40% for any other place. Rule 279 of the Income-tax Rules, 2026 lists these eight locations and applies the percentage to the location of the residential accommodation [1]. The exempt amount cannot exceed any one of the three limits.
The rent-minus-10% figure can be zero or negative. In that case, there is no exemption for that period: paying rent alone does not guarantee relief. Likewise, the 50% figure is one ceiling in the comparison, not an exemption rate to apply automatically. Only the qualifying portion of the HRA is exempt; any balance remains taxable as salary.
Which salary and rental period count?
Use salary for the period the rented home was occupied, not total cost-to-company. Rule 279 includes dearness allowance if the employment terms provide for it, while excluding other allowances and perquisites [1]. Do not add travel or special allowances just because they appear in the payslip; check unusual pay components against the rule.
Count only the months you occupied the accommodation during the tax year. If you moved or began renting part-way through a year, calculate for the relevant months and keep a month-by-month record. The department’s return schedule for the 1961 Act also lists place of work, HRA, rent, basic salary and dearness allowance as calculation inputs [2].
Worked example: a rented home in Mumbai
Suppose an employee lives in a rented Mumbai flat for all 12 months. For illustration, assume monthly basic salary is ₹60,000, qualifying dearness allowance is ₹5,000, HRA received is ₹30,000 and rent paid is ₹25,000. Assume the DA qualifies under the employment terms and there are no changes during the year. The figures below are illustrative, not a tax assessment.
Qualifying salary is ₹65,000 a month, or ₹7,80,000 for 12 months. Annual HRA received is ₹3,60,000. Annual rent is ₹3,00,000; subtract 10% of salary (₹78,000) to get ₹2,22,000. The location limit is 50% of salary, or ₹3,90,000. Compare ₹3,60,000, ₹2,22,000 and ₹3,90,000: the lowest is ₹2,22,000, so that is the illustrative exemption. The remaining ₹1,38,000 of HRA is taxable. A non-metro location could produce a different third figure, but the lowest-of-three method is the same [1].
Rent receipts and landlord details to organise
Keep a file for each address: the rent agreement if available, month-wise receipts or a rent ledger, payment confirmations, and occupancy dates. Match each receipt to the landlord, amount and month. Bank or UPI records help corroborate payments, but follow your employer’s evidence checklist. The department’s ITR-2 FAQ lists rent receipts for HRA calculation where they were not submitted to the employer [4].
For tax deducted from salary under the 2026 rules, Rule 205 requires landlord name, address and PAN, plus the relationship if any, where aggregate rent paid during the tax year exceeds ₹1,00,000 [3]. Form 124 includes HRA particulars such as landlord details and rent paid. This is an evidence-disclosure rule; it does not change the exemption formula or mean that a claim is valid without genuine rent and eligibility. Ask HR how it wants documents submitted and retain copies after payroll review.
Claiming it and avoiding calculation errors
Give payroll your rent-period and salary details, then reconcile the figures with Form 16 and the return schedule. Employer estimates do not replace checking the annual calculation; the department describes the same three-way comparison for the 1961 Act [2].
Avoid using gross salary or CTC, claiming 50% of HRA instead of salary, applying the city limit based on your office rather than home, counting months you did not occupy the rental, or claiming unpaid rent. Employer acceptance of paperwork is not a legal approval of a claim.
Check the regime and tax-year rules before claiming. The department’s FAQ for AY 2024-25 says HRA under section 10(13A) was unavailable in the new regime [5]. That guidance is year-specific; for tax years governed by the Income-tax Act, 2025 and Rules, 2026 (effective 1 April 2026), verify the current return utility rather than carrying an old FAQ forward.
A quick pre-filing checklist
Before claiming, confirm you received HRA and paid rent for a home you occupied. Use salary for those months, check the home’s location, calculate each limit and take the smallest. Reconcile receipts and payments, provide landlord details required by Rule 205, and verify the regime and return-year form. Complex facts may need professional advice.
Handling salary changes, moves and part-year rent
A year-end salary figure can hide changes that matter to a period-based calculation. If basic salary or qualifying dearness allowance changed, keep the employer's effective dates and calculate the comparison for the relevant months instead of multiplying one month's amount by twelve. The same applies when HRA began or stopped part-way through the year. A small monthly worksheet helps reconcile the allowance paid, salary basis, rent paid and occupation period. Rule 279 is framed around the period for which the accommodation is occupied, so the calculation should follow the documented facts for that period [1].
A move between locations may change the third ceiling in the formula. Record the address and dates for each rented home, then use the location of the accommodation for the matching period. Do not choose the location based on where the employer is headquartered or where payroll processes the claim. When dates cross a move, separate the periods and make a fresh lowest-of-three comparison. The notified rule names the locations covered by the higher limit; confirm the address against that list rather than relying on an informal ‘metro’ label [1].
If you paid rent to someone in your family or to a person who has another financial connection to you, do not rely on the relationship alone to decide whether a claim qualifies. Verify the legal requirements for your facts, make sure that rent was genuinely paid for the occupied accommodation, and retain a clear agreement or ledger, payment record and landlord details. Keep a record of who owned the home and who paid each month. A spreadsheet entry or payroll declaration is not a substitute for a real transaction and supporting evidence.
For overlapping living arrangements, such as a temporary stay during a relocation or a home that was rented for only part of the year, make the timeline explicit. Mark the first and last occupancy dates, the rent obligation, the dates of payment and the HRA actually received. Do not include months simply because a rent agreement covers a longer period if the facts differ. If a payment covers more than one month, note the period it relates to so your records can be checked consistently against receipts and bank confirmations [1] [4].
Finally, save the calculation version you supplied to payroll and compare it with the certificate and tax-return information for the relevant year. If the numbers differ, identify whether the change is due to salary, rent, location, occupancy or the selected regime before asking HR to review it. Employer document rules can be administrative and may ask for evidence in a particular format; keep your own copies as well. Since the 2026 tax-law transition affects year terminology and forms, use the current-year official instructions rather than copying a prior-year checklist unchanged [2] [5].
Frequently asked questions
Is the full HRA shown on my payslip tax-free?
No. The exemption is the least of actual HRA, rent paid minus 10% of qualifying salary, and the applicable 50% or 40% salary limit. Any excess HRA is taxable.
Does HRA exemption apply if I live in my own home?
The exemption is for rent actually paid for occupied rented accommodation. Living in a home you own, without paying rent for the accommodation, does not meet that condition.
Which cities have the 50% salary limit from April 2026?
Rule 279 lists Mumbai, Kolkata, Delhi, Chennai, Hyderabad, Pune, Ahmedabad and Bengaluru. Other locations use the 40% salary limit under that rule.
Do I need the landlord’s PAN for an HRA claim?
Under Rule 205 of the 2026 Rules, landlord name, address and PAN, and relationship if any, are to be furnished where total rent paid in the tax year exceeds ₹1,00,000.
Can I claim HRA if rent is less than 10% of salary?
No exemption arises for that period when rent paid does not exceed 10% of qualifying salary, because the rent-minus-10% component is zero or negative.
Conclusion
HRA exemption is a lowest-of-three calculation tied to actual rent, qualifying salary, location and the months you occupied a rented home. Work the numbers separately, keep rent evidence and landlord details, and check regime-specific rules for the tax year concerned. These steps make an estimate more transparent and reduce avoidable payroll or return mismatches; the final treatment depends on the applicable law and your facts.
Sources and further reading
Primary and reputable sources are linked so readers can check rules and product terms directly. Rules can change; confirm the current official guidance before acting.
- Income-tax Rules, 2026, notified under G.S.R. 198(E), Rules 279 and 205 — Ministry of Finance, Department of Revenue, Central Board of Direct Taxes, Government of India
Primary notified rules effective 1 April 2026: Rule 279 sets the lowest-of-three HRA formula, defines the qualifying period and salary treatment, and lists the eight 50% locations; Rule 205 sets employer TDS evidence particulars and the rent threshold.
- Schedule 10(13A) – House Rent Allowance (HRA) — Income Tax Department, Ministry of Finance, Government of India
Official return-schedule guidance under the Income-tax Act, 1961: HRA inputs and the three-part calculation; the department page identifies the legal framework it covers.
- Rule Number 205: Furnishing of evidence of claims by employee for deduction of tax from income under head Salaries — Income Tax Department, Ministry of Finance, Government of India
Current 2026 employer TDS documentation rule: landlord name, address and PAN where aggregate tax-year rent exceeds ₹1,00,000, with relationship disclosure if any, and Form 124 process.
- File ITR-2 Online FAQs — Income Tax Department, Government of India
Department filing FAQ lists rent-paid receipts for HRA calculation if they were not submitted to the employer; the page includes older assessment-year material, so it is cited as practical records guidance rather than a current-year filing rule.
- FAQs on New Tax vs Old Tax Regime — Income Tax Department, Government of India
Department FAQ states that HRA exemption was unavailable in the new regime for the pre-2026 Income-tax Act framework; its guidance is year-specific and the article flags that the 2026 transition requires current-year verification.