HRA Exemption Explained: How Much of Your House Rent Allowance Is Tax-Free
HRA exemption isn't just "whatever your employer pays" — it's the smallest of three separate numbers, and getting the calculation wrong is the most common reason people under- or over-claim it.
EDTechToolsCenter EditorialHouse Rent Allowance (HRA) is a common part of Indian salary structures, and a portion of it can be tax-exempt if you actually pay rent — but the exempt amount is never simply "the HRA you receive." It's calculated as the least of three separate figures, and most confusion comes from not running all three.
The three-way calculation
Under Section 10(13A) of the Income Tax Act, your HRA exemption is the smallest of: (1) the actual HRA received from your employer, (2) rent paid minus 10% of your basic salary (plus dearness allowance, if any), and (3) 50% of basic salary if you live in a metro city (Delhi, Mumbai, Kolkata, Chennai) or 40% for a non-metro city. Whichever of these three numbers is lowest is what's actually exempt — the other two don't matter once you've found the minimum.
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A worked example
Say your basic salary is ₹40,000/month, your employer pays HRA of ₹20,000/month, you pay rent of ₹18,000/month, and you live in a non-metro city. The three figures: (1) actual HRA received = ₹20,000; (2) rent paid minus 10% of basic = ₹18,000 − ₹4,000 = ₹14,000; (3) 40% of basic (non-metro) = ₹16,000. The smallest of the three is ₹14,000 — that's your monthly exempt HRA, not the full ₹20,000 your employer pays out.
This only applies under the old regime
Documents you need to claim it
- Rent receipts for the months you're claiming — showing the amount, period, and landlord's signature.
- Your landlord's PAN, mandatory if your annual rent exceeds ₹1,00,000 — without it, your employer can refuse to allow the exemption at source even if you're otherwise eligible.
- A rent agreement, which most employers ask for as supporting proof alongside receipts.
Common mistakes
- Assuming the full HRA amount is automatically exempt — it's the smallest of the three figures above, almost never the full amount received.
- Not collecting your landlord's PAN when rent crosses ₹1,00,000/year, which can hold up the claim.
- Claiming HRA exemption while on the new regime, where it simply isn't available.
- Forgetting that paying rent to a parent is allowed (with a genuine rent agreement and the parent declaring it as their income), but paying rent to a spouse generally isn't accepted.
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Frequently asked questions
Yes, this is allowed if it's a genuine arrangement — a rent agreement and actual rent receipts, with your parent declaring the rent received as their income. It generally isn't accepted for rent paid to a spouse.
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