HRA Exemption: Rules, Calculation & Documents Required (FY 2026-27)

What is HRA Exemption?

House Rent Allowance (HRA) is a component of salary provided by employers to help employees meet rental expenses. Under the old tax regime, a portion of HRA can be claimed as exempt from income tax, significantly reducing your tax liability if you pay rent.

Important: HRA exemption is not available under the new tax regime. If you opt for the new regime, HRA received will be fully taxable. Always compare both regimes before deciding.

How HRA Exemption is Calculated (3-Part Rule)

The exempt HRA is the least of the following three amounts:

#	Rule	Formula
1	Actual HRA received	HRA component from your salary
2	Rent paid minus 10% of salary	Rent Paid − 10% × (Basic + DA)
3	50% or 40% of salary	50% × (Basic + DA) for metro cities 40% × (Basic + DA) for non-metro cities

Here, salary means Basic Pay + Dearness Allowance (DA, if it forms part of retirement benefits) + Commission (if applicable as a fixed percentage of turnover).

Example Calculation

Let's say you work in Mumbai (metro city) with the following details:

Component	Annual Amount
Basic Salary	Rs 6,00,000
HRA Received	Rs 3,00,000
Rent Paid	Rs 2,40,000 (Rs 20,000/month)

Calculation:

• Rule 1: Actual HRA = Rs 3,00,000
• Rule 2: Rent paid − 10% of salary = Rs 2,40,000 − Rs 60,000 = Rs 1,80,000
• Rule 3: 50% of salary (metro) = Rs 3,00,000

Exempt HRA = Least of the three = Rs 1,80,000

The remaining Rs 1,20,000 (Rs 3,00,000 − Rs 1,80,000) will be added to your taxable income.

Metro vs Non-Metro Cities

The third component of HRA calculation differs based on whether you live in a metro or non-metro city:

City Type	Cities Included	HRA Cap (Rule 3)
Metro (FY 2026-27)	Delhi, Mumbai, Kolkata, Chennai, Bengaluru, Hyderabad, Pune, Ahmedabad	50% of Basic + DA
Non-Metro	All other cities	40% of Basic + DA

Note (FY 2026-27 update): From FY 2026-27 under the Income Tax Act 2025, the metro city list expands from 4 to 8 cities. Bengaluru, Hyderabad, Pune, and Ahmedabad are now classified as metro cities and qualify for the 50% HRA cap.

Documents Required for HRA Exemption

To claim HRA exemption, keep the following documents ready:

• Rent receipts: Monthly receipts signed by your landlord (mandatory for claims above Rs 3,000/month)
• Rental agreement: A valid lease/rental agreement with your landlord
• Landlord's PAN: Mandatory if your total annual rent exceeds Rs 1,00,000
• Proof of payment: Bank transfer statements or UPI transaction records
• Declaration: If paying rent to family members, ensure it's a genuine arrangement with proper documentation

Important Rules & Tips (FY 2026-27)

• HRA exemption is available only under the old tax regime. Compare regimes first using our New vs Old Regime guide.
• If you receive HRA but do not pay rent, the entire HRA is taxable.
• You cannot claim both HRA exemption and deduction under Section 80GG (80GG is for those who don't receive HRA).
• If you live in your own house, HRA exemption cannot be claimed.
• HRA exemption is calculated on a monthly basis — if you change cities mid-year, the metro/non-metro rate applies for the respective months.
• Paying rent to parents is allowed, but they must declare it as rental income in their ITR.

FAQ

Can I claim HRA in the new tax regime?

No. HRA exemption is not available under the new tax regime for FY 2026-27. If you opt for the new regime, HRA will be fully taxable as part of your salary.

What if I don't receive HRA from my employer?

If you don't receive HRA but pay rent, you may be eligible for a deduction under Section 80GG (up to Rs 5,000/month or 25% of total income, whichever is less), subject to conditions.

Can I claim HRA if I pay rent to my spouse?

Generally, paying rent to your spouse is not accepted for HRA exemption. However, paying rent to parents is allowed with proper documentation.

Is HRA exemption calculated monthly or annually?

HRA exemption is calculated on a monthly basis. This is especially important if your salary, rent, or city changes during the year.

What happens if my landlord doesn't have a PAN?

If annual rent exceeds Rs 1,00,000, you must provide the landlord's PAN. If the landlord doesn't have one, they should provide a declaration in Form 60.

Calculate Your HRA Exemption

Don't guess — use our HRA Exemption Calculator to compute your exact exemption based on your salary, HRA, rent, and city. It handles the 3-part rule automatically.