HRA Exemption: Formula, Example and Tax Regime Rules
Understand HRA exemption calculation, the 3-limit formula, metro and non-metro rules, rent minus 10% basic condition, and old vs new regime treatment.
Direct answer
HRA exemption is the minimum of actual HRA received, 40% or 50% of basic salary, and rent paid minus 10% of basic salary. It is generally relevant under the old tax regime for most salaried taxpayers.
HRA formula
HRA EXEMPTION
Minimum of:
1. Actual HRA received
2. 50% of basic in metro / 40% in non-metro
3. Rent paid − 10% of basic
Worked example
Suppose annual basic is ₹6,00,000, HRA received is ₹3,00,000, annual rent paid is ₹2,40,000 and the employee lives in a metro.
- Actual HRA = ₹3,00,000.
- 50% of basic = ₹3,00,000.
- Rent minus 10% of basic = ₹2,40,000 − ₹60,000 = ₹1,80,000.
- Exemption = minimum = ₹1,80,000 per year.
Tax regime treatment
For most salaried taxpayers, HRA exemption is an old-regime deduction. Under the new regime, HRA is generally not exempt even if you receive it in your salary. That is why comparing old and new regimes is important.
Limitations
- Basic salary may include DA or commission under applicable salary definitions.
- Rent receipts and landlord details may be required by your employer.
- Renting to certain close relatives may be scrutinized and must be genuine.
- This guide is educational and does not provide personalized tax advice.
Source: Income Tax Department. Last reviewed: 24 August 2026.
Article FAQ
Can I claim HRA in the new regime?
Generally no for most salaried taxpayers. Use the income tax calculator to compare old and new regimes.
What if my rent is less than 10% of basic?
The third condition becomes zero or negative, so HRA exemption is zero in that calculation.
Is HRA calculated monthly or annually?
The calculator uses annual figures; divide by 12 for a monthly estimate. Salary changes during the year require period-wise calculation.
Run the numbers yourself
Use the free SmartFintool calculators to apply this guide to your own money.