- \n
- HRA exemption is the lesser<\/em> of three amounts: actual HRA received, 50% of basic salary (metro cities) or 40% (non-metro), or rent paid minus 10% of salary.<\/li>\n
- You must submit a rent receipt and declaration form to claim HRA exemption; without proof, your full HRA is taxable.<\/li>\n
- If you own a home with a home loan, HRA exemption is denied entirely\u2014even if you rent elsewhere.<\/li>\n
- Metro cities (Delhi, Mumbai, Bangalore, Chennai, Hyderabad, Kolkata) get 50% exemption limit; others get 40%.<\/li>\n
- Freelancers and self-employed individuals receive no HRA; this applies only to salaried employees.<\/li>\n<\/ul>\n
![\"HRA](\"https:\/\/jupiter.money\/blog\/wp-content\/uploads\/2026\/09\/hra-tax-exemption-calculation-salaried-employees_in.png\")
<\/figure>\nHow Is HRA Tax Exemption Calculated?<\/h2>\n
The Income Tax department uses a three-part formula. Your HRA exemption is the lowest of these three amounts<\/strong>:<\/p>\n
- \n
- Actual HRA received<\/strong> (from your salary slip)<\/li>\n
- Percentage of basic salary<\/strong>: 50% for metro cities, 40% for non-metro cities<\/li>\n
- Rent paid minus 10% of salary<\/strong>: (Monthly rent \u00d7 12) \u2212 (10% of basic salary \u00d7 12)<\/li>\n<\/ol>\n
Example:<\/strong>
\n– Monthly basic salary: \u20b950,000
\n– Monthly HRA: \u20b930,000
\n– City: Mumbai (metro)
\n– Monthly rent: \u20b928,000<\/p>\nAnnual calculation:<\/strong>
\n1. Actual HRA = \u20b930,000 \u00d7 12 = \u20b93,60,000<\/strong>
\n2. 50% of basic = \u20b950,000 \u00d7 50% \u00d7 12 = \u20b93,00,000<\/strong>
\n3. Rent minus 10% of salary = (\u20b928,000 \u00d7 12) \u2212 (\u20b950,000 \u00d7 10% \u00d7 12) = \u20b93,36,000 \u2212 \u20b960,000 = \u20b92,76,000<\/strong><\/p>\nYour HRA exemption = \u20b92,76,000<\/strong> (the lowest amount). This means \u20b93,60,000 \u2212 \u20b92,76,000 = \u20b984,000 of your HRA is taxable.<\/p>\n
What Documents Do You Need to Claim HRA Exemption?<\/h2>\n
The Income Tax Act requires two mandatory documents:<\/p>\n
- \n
- \n
Rent receipt or lease agreement<\/strong> signed by the landlord, showing:
\n – Tenant’s name (you)
\n – Landlord’s name and PAN (if annual rent exceeds \u20b91 lakh)
\n – Monthly or annual rent amount
\n – Period of tenancy<\/p>\n<\/li>\n- \n
Declaration form<\/strong> (Form 1) stating:
\n – That you’re renting and not living in your own home
\n – Your monthly rent paid
\n – Your landlord’s details<\/p>\n<\/li>\n<\/ol>\nMany employers provide a standard HRA declaration form; fill it out and attach rent receipts. Without these, your entire HRA becomes taxable<\/strong>, even if you’re genuinely renting.<\/p>\n
When Is HRA Exemption NOT Available?<\/h2>\n
Own a Home (Even If You Don’t Live in It)<\/h3>\n
If you own residential property registered in your name\u2014whether you’re living in it or not\u2014you cannot claim HRA exemption. This includes:
\n– Your primary residence
\n– An investment property you’re renting to others
\n– A property jointly owned with a spouse
\n– A property where a spouse or dependent lives<\/p>\nThe rule assumes if you own a home, you don’t “need” to rent. Courts have upheld this strictly.<\/p>\n
Rent Paid to a Relative<\/h3>\n
Rent paid to your spouse, parents, siblings, or other relatives typically doesn’t qualify for HRA exemption. The Income Tax department scrutinizes family-related rent transactions heavily.<\/p>\n
No Rent Receipt or Proof<\/h3>\n
If you can’t provide a signed rent receipt with your landlord’s PAN (for rents exceeding \u20b91 lakh annually), the exemption is denied. Self-written receipts or informal arrangements don’t suffice.<\/p>\n
No Lease Agreement<\/h3>\n
While a receipt is minimum, a formal lease agreement strengthens your claim and reduces audit risk.<\/p>\n
HRA Exemption: Metro vs Non-Metro Cities<\/h2>\n
The Income Tax Act classifies metro cities (Delhi, Mumbai, Bangalore, Chennai, Hyderabad, Kolkata) separately:<\/p>\n
\n\n
\n \nAspect<\/th>\n Metro Cities<\/th>\n Non-Metro Cities<\/th>\n<\/tr>\n<\/thead>\n \n Exemption limit<\/td>\n 50% of basic salary<\/td>\n 40% of basic salary<\/td>\n<\/tr>\n \n Examples<\/td>\n Delhi, Mumbai, Bangalore, Chennai<\/td>\n Pune, Ahmedabad, Jaipur, Indore<\/td>\n<\/tr>\n \n When to claim<\/td>\n If all three formula conditions apply<\/td>\n If all three formula conditions apply<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n If you move cities mid-year, the exemption changes based on where you lived during each period. Calculate HRA exemption separately for each city.<\/p>\n
How to Claim HRA Exemption in Your ITR Filing<\/h2>\n
When filing your Income Tax Return:<\/p>\n
- \n
- Include HRA in gross salary<\/strong> (Schedule S1 or relevant section of ITR form).<\/li>\n
- Claim exemption under Section 10(13A)<\/strong> in the deductions section.<\/li>\n
- Mention the lowest of the three amounts<\/strong> as your exemption.<\/li>\n
- Attach or declare<\/strong> the rent receipt and HRA declaration in your ITR annexures.<\/li>\n
- Keep originals<\/strong> for 6 years in case of an income tax audit.<\/li>\n<\/ol>\n
Many employers automatically calculate and exempt HRA at the payroll stage, so the tax is deducted after exemption. However, if your employer didn’t grant exemption or you changed jobs mid-year, claim it when filing your ITR.<\/p>\n
- Claim exemption under Section 10(13A)<\/strong> in the deductions section.<\/li>\n
- \n
- Percentage of basic salary<\/strong>: 50% for metro cities, 40% for non-metro cities<\/li>\n