How HRA exemption is calculated
If you receive HRA from your employer, live in a rented home and file under the old tax regime, the tax-free part of your HRA is the lowest of:
- The HRA you actually receive,
- Rent paid minus 10% of salary,
- 50% of salary if you live in one of the specified cities, or 40% elsewhere.
"Salary" here means basic pay plus DA that counts for retirement benefits — not your gross pay.
The new city list for FY 2026-27
Until FY 2025-26, only Delhi, Mumbai, Kolkata and Chennai qualified for the 50% limit. From FY 2026-27, under the new Income-tax Rules, Bengaluru, Hyderabad, Pune and Ahmedabad have reportedly been added, so eight cities get 50%. Choose FY 2026-27 or 2025-26 in the calculator to see the difference, and confirm the final rules with your employer's payroll team.
Example: basic ₹40,000, HRA ₹20,000 and rent ₹25,000 a month in Pune:
| Limit | FY 2025-26 (Pune = 40%) | FY 2026-27 (Pune = 50%) |
|---|---|---|
| Actual HRA | ₹2,40,000 | ₹2,40,000 |
| Rent − 10% of salary | ₹2,52,000 | ₹2,52,000 |
| % of salary | ₹1,92,000 | ₹2,40,000 |
| Exempt HRA | ₹1,92,000 | ₹2,40,000 |
The new rule makes ₹48,000 more of this person's HRA tax-free.
Ways to get the most from HRA
- Pay enough rent. If rent minus 10% of salary is the lowest limit, a higher rent (if genuine) raises the exemption.
- Paying rent to parents is allowed if you actually pay it (bank transfer is best) and they own the home and declare the rent as income.
- Keep proof. Rent receipts, a rent agreement and bank transfer records. If annual rent exceeds ₹1 lakh, your employer needs your landlord's PAN.
- No HRA from your employer? Under the old regime, you may claim a separate deduction for rent paid (popularly known as Section 80GG), up to ₹5,000 a month, if you meet its conditions.
Old or new regime?
HRA exemption is not available in the new tax regime. If HRA is one of your larger deductions, compare your tax under both regimes before choosing. A home loan's tax benefits work differently — see the home loan EMI calculator guide.