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.

The HRA exemption is the minimum of three calculations: the actual HRA received from the employer; 50% of basic salary for metro cities (Delhi, Mumbai, Chennai, Kolkata) 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.

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

• Metro cities (50% of basic): Delhi, Mumbai, Chennai, Kolkata
• Non-metro cities (40% of basic): All other cities including Bengaluru, Hyderabad, Pune, Ahmedabad, Jaipur etc.
• Note: Bengaluru, Hyderabad, and Pune are classified as non-metro for HRA purposes despite being major cities

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)
• Income Tax Act 1961, Section 80GG (alternative deduction for self-employed or salaried without HRA)

Last reviewed against Income Tax Act 2025 in April 2026. The metro/non-metro classification and exemption formula have been stable since the Income Tax Rules 1962; HRA exemption is available only under the Old Regime.