HRA Exemption Explained: How to Calculate It With Real Examples
House Rent Allowance (HRA) exemption is only available in the old tax regime. If you rent and pay rent, it can save you ₹50,000-₹1.5 lakh in tax per year. But the calculation trips people up.
The formula
HRA exempted = minimum of these three: 1. Actual HRA received from your employer 2. Rent paid minus 10% of basic salary 3. 50% of basic salary (if living in Mumbai, Delhi, Chennai, Kolkata) or 40% of basic (other cities)
Whichever is smallest becomes your exemption. The rest of the HRA is added to taxable income.
Example 1: Mumbai professional
- Basic salary: ₹60,000/month (₹7.2L/year)
- HRA from employer: ₹25,000/month (₹3L/year)
- Actual rent paid: ₹30,000/month (₹3.6L/year)
Calculation: 1. Actual HRA = ₹3,00,000 2. Rent minus 10% basic = ₹3,60,000 − ₹72,000 = ₹2,88,000 3. 50% of basic (metro) = ₹3,60,000
Minimum = ₹2,88,000 exempt. Taxable HRA = ₹3,00,000 − ₹2,88,000 = ₹12,000.
At 30% bracket, tax saved = ₹86,400.
Example 2: Bangalore IT employee
- Basic: ₹50,000/month (₹6L/year)
- HRA: ₹20,000/month (₹2.4L/year)
- Rent: ₹18,000/month (₹2.16L/year)
Note: Bangalore is NOT a metro for HRA rules (only Mumbai/Delhi/Chennai/Kolkata). So 40% applies.
1. Actual HRA = ₹2,40,000 2. Rent − 10% basic = ₹2,16,000 − ₹60,000 = ₹1,56,000 3. 40% of basic = ₹2,40,000
Minimum = ₹1,56,000 exempt.
What you must have to claim it
- Rent receipts for every month (or a lease agreement)
- Landlord's PAN if annual rent > ₹1 lakh (this is mandatory — no PAN = claim rejected)
- Bank transfer record of rent (increasingly demanded over cash)
Can you pay rent to your parents?
Yes, legally. Transfer rent to their bank account, get receipts. Parents must declare it as rental income in their return. Works especially well if parent is a senior citizen in a lower bracket.
If you don't get HRA
Rent-paying non-HRA earners (self-employed, consultants) can claim Section 80GG — up to ₹60,000/year deduction. Different rules, lower cap.
Calculate in 30 seconds
Use our HRA Calculator — enter basic, HRA, rent, city. Gets you the exempt amount and taxable balance instantly.
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