What is HRA and How is the Exemption Calculated?

House Rent Allowance (HRA) is a component of salary provided by employers to help employees cover rental expenses. Under Section 10(13A) of the Income Tax Act, employees living in rented accommodation can claim HRA exemption, reducing their taxable income. This exemption is only available under the Old Tax Regime - HRA exemption cannot be claimed under the New Tax Regime. HRA sits inside your wider pay structure - our Salary Calculator shows where it fits alongside Basic, PF, professional tax, and final in-hand for any CTC.

The HRA exemption is the minimum of three calculations: the actual HRA received from the employer; 50% of basic salary for metro cities or 40% for non-metro cities; and the actual rent paid minus 10% of basic salary. The lowest of these three amounts is exempt from income tax. Which cities count as metro changed from FY 2026-27 - see the city list below.

To claim HRA exemption, employees must submit rent receipts to their employer. If annual rent exceeds Rs.1,00,000, the landlord's PAN is mandatory. Self-employed individuals cannot claim HRA exemption under Section 10(13A) but can claim deduction under Section 80GG subject to conditions.

Metro vs Non-Metro Cities for HRA (4-city rule vs 8-city rule from FY 2026-27)

The list of cities that qualify for the higher 50% metro rate expanded from FY 2026-27. Pick the rule that matches the year you are computing for: FY 2025-26 return filing still uses the old 4-city list, while FY 2026-27 onward (Tax Year 2026-27 under the Income-tax Act 2025) uses the new 8-city list.

• FY 2025-26 filing (old 4-city rule): metro cities at 50% of Basic+DA are Delhi, Mumbai, Chennai, and Kolkata. Bengaluru, Hyderabad, Pune, Ahmedabad and all other cities are non-metro at 40%. This applies Section 10(13A) read with Rule 2A of the Income Tax Rules 1962.
• FY 2026-27 onward (new 8-city rule): the metro list at 50% adds Bengaluru, Hyderabad, Pune, and Ahmedabad to the original four - eight cities in total. All remaining cities stay non-metro at 40%. This applies Section 10(13A) read with Rule 279 of the Income-tax Rules 2026.
• The change comes from Rule 279 of the Income-tax Rules 2026 (CBDT Notification No. 22/2026), effective 1 April 2026. The lowest-of-three exemption formula and the 50%/40% rates themselves are unchanged - only which cities count as metro.

Sources & References

• Income Tax Department of India
• Income Tax Act 1961, Section 10(13A) (HRA exemption for salaried employees)
• Income Tax Rules 1962, Rule 2A (HRA exemption calculation method); re-codified and updated as Rule 279 of the Income-tax Rules 2026 (CBDT Notification No. 22/2026), which expands the metro city list from four to eight effective FY 2026-27
• Income Tax Act 1961, Section 80GG (alternative deduction for self-employed or salaried without HRA)

Last reviewed against the Income-tax Rules 2026 (Rule 279, CBDT Notification No. 22/2026) in June 2026. The lowest-of-three exemption formula and the 50%/40% rates are unchanged from the Income Tax Rules 1962, but the metro city list expands from four to eight from FY 2026-27. HRA exemption is available only under the Old Regime.