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Rent receipt › HRA exemption calculation
HRA exemption: how it is worked out
Not all your HRA becomes tax free. The exempt part is the smallest of three amounts, and the rest is added to your taxable salary. Here is the rule with real numbers, so you can check what your employer works out.
The rule of three amounts (old tax regime)
For the months you lived in a rented house and paid rent, the HRA exemption is the least of these:
- The HRA you actually got from your employer.
- Rent you paid, minus 10% of your salary.
- 50% of your salary if you live in Delhi, Mumbai, Kolkata, Chennai, Bengaluru, Hyderabad, Pune or Ahmedabad (the last four were added by the Income-tax Rules, 2026, from April 2026); 40% in other places, including Noida, Gurugram and other satellite towns.
Here "salary" means basic pay plus dearness allowance (DA) that counts for retirement benefits, plus commission fixed as a percentage of sales if you get any. Other allowances are left out.
Worked example 1: Ludhiana
Rohit works in Ludhiana. Each month: basic ₹40,000, no DA, HRA ₹16,000. He pays rent of ₹15,000 a month for the whole year.
| Amount | For the year |
|---|---|
| Salary (basic): ₹40,000 × 12 | ₹4,80,000 |
| 1. HRA received: ₹16,000 × 12 | ₹1,92,000 |
| 2. Rent ₹1,80,000 minus 10% of salary ₹48,000 | ₹1,32,000 |
| 3. 40% of salary (not a metro) | ₹1,92,000 |
| Exempt HRA (least of the three) | ₹1,32,000 |
| Taxable HRA: ₹1,92,000 − ₹1,32,000 | ₹60,000 |
Rent is ₹1,80,000 a year, above ₹1,00,000, so Rohit needs his landlord's PAN on the receipts.
Worked example 2: Delhi, higher rent
Neha in Delhi: basic ₹50,000 and DA ₹5,000 a month (salary ₹55,000), HRA ₹22,000, rent ₹30,000 a month.
| Amount | For the year |
|---|---|
| Salary: ₹55,000 × 12 | ₹6,60,000 |
| 1. HRA received: ₹22,000 × 12 | ₹2,64,000 |
| 2. Rent ₹3,60,000 minus ₹66,000 | ₹2,94,000 |
| 3. 50% of salary (Delhi) | ₹3,30,000 |
| Exempt HRA | ₹2,64,000 (all of it) |
Here the whole HRA is exempt, because the HRA received is the smallest amount. Paying more rent would not save more tax.
Things that change the answer
- Part of the year. Work it out month by month for the months you paid rent. If you moved city or your pay changed mid-year, each period is calculated on its own figures.
- Rent below 10% of salary. Amount 2 becomes zero, so no HRA is exempt.
- Living in your own house. No rent paid means no HRA exemption.
- New tax regime. No HRA exemption at all, whatever the numbers. See rent receipts for HRA.
How your employer uses this
Once you hand in the rent receipts and declaration, payroll works out the exempt HRA for the year, spreads the tax saving over the remaining months and shows the exempt amount in your yearly TDS certificate. If the receipts reach payroll late, the saving comes all at once in the last months, or you claim it in your own return.