House Rent Allowance (HRA) exemption FY 2025-26: the least-of-three formula, metro cities (Delhi/Mumbai/Kolkata/Chennai = 50%), worked calculation examples, rent to parents rules, landlord PAN requirement, TDS on rent, and Section 80GG for those without HRA in salary.
HRA Quick Reference
HRA Exemption Formula — Least of Three Rule
HRA Calculation — Worked Examples
HRA and the Old vs New Tax Regime
Rent to Parents — Rules & Tax Implications
Landlord PAN & TDS on Rent
Section 80GG — HRA for Self-Employed & Those Without HRA
HRA + Home Loan — Can You Claim Both?
FAQs on HRA Exemption
HRA Exemption — Key Rules at a Glance
HRA is exempt from income tax under Section 10(13A) of the Income Tax Act, 1961. The exemption is the LOWEST of three calculated amounts — called the 'least of three' rule.
| Parameter | Details |
|---|---|
| Legal provision | Section 10(13A) read with Rule 2A |
| Available under | Old tax regime ONLY — not available under new tax regime |
| Metro cities (50% of basic+DA) | Delhi, Mumbai, Kolkata, Chennai — only these 4 cities |
| Non-metro cities (40% of basic+DA) | All other cities — Bengaluru, Hyderabad, Pune, Ahmedabad, etc. |
| Exemption = Least of | (1) Actual HRA received, (2) 50%/40% of Basic+DA, (3) Rent paid minus 10% of Basic+DA |
| Landlord PAN required if | Annual rent exceeds ₹1,00,000 (i.e., more than ₹8,333/month) |
| TDS on rent (Sec 194IB) | If rent > ₹50,000/month: tenant deducts 5% TDS (10% if no PAN) |
| Rent to parents | ✅ Allowed — parents must declare as income; need rent agreement |
| Rent to spouse | ❌ Not allowed — considered non-genuine |
| Self-employed without HRA | Section 80GG deduction available (up to ₹60,000/year) |
The Three-Way Calculation
The HRA exemption is always the MINIMUM of these three amounts:
Amount 1: Actual HRA received
The HRA component your employer actually pays you in the year
Check your salary slip or Form 16 Part B for this figure
If HRA is not a separate component in your CTC, your employer has not provided HRA
Amount 2: 50% or 40% of (Basic Salary + DA)
50% if you live in Delhi, Mumbai, Kolkata, or Chennai
40% if you live in any other city — including Bengaluru, Hyderabad, Pune, Ahmedabad, Gurugram, Noida
DA (Dearness Allowance) is included only if it forms part of pay for retirement benefits
Amount 3: Rent paid minus 10% of Basic Salary + DA
Actual annual rent paid to landlord − 10% of annual (Basic + DA)
If this comes out negative (rent is low compared to salary), HRA exemption from this limb is nil
Ensure rent receipts and rental agreement are maintained as proof
Metro vs Non-Metro — Which Cities Get 50%?
| Category | Cities | Notes |
|---|---|---|
| Metro (50% of Basic+DA) | Delhi, Mumbai, Kolkata, Chennai | These 4 cities only — as specified in Rule 2A |
| Non-Metro (40% of Basic+DA) | Bengaluru, Hyderabad, Pune, Ahmedabad, Gurugram, Noida, Chandigarh, Jaipur, Surat — ALL other cities | Despite being large cities, these are 'non-metro' for HRA purposes |
Example 1: Salaried Employee in Delhi (Metro)
Meera works in Delhi. Monthly: Basic ₹40,000, DA ₹5,000 (part of retirement), HRA ₹18,000. Rent paid: ₹15,000/month.
| Step | Amount |
|---|---|
| Annual HRA received | ₹18,000 × 12 = ₹2,16,000 |
| 50% of (Basic + DA) — Metro city | 50% × (₹40,000 + ₹5,000) × 12 = 50% × ₹5,40,000 = ₹2,70,000 |
| Annual rent paid | ₹15,000 × 12 = ₹1,80,000 |
| Less: 10% of (Basic + DA) | 10% × ₹5,40,000 = ₹54,000 |
| Rent paid minus 10% of salary | ₹1,80,000 − ₹54,000 = ₹1,26,000 |
| Least of three amounts | min(₹2,16,000 ; ₹2,70,000 ; ₹1,26,000) = ₹1,26,000 |
| HRA exempt from tax | ₹1,26,000 |
| Taxable HRA (₹2,16,000 − ₹1,26,000) | ₹90,000 added to taxable income |
Example 2: Salaried Employee in Bengaluru (Non-Metro)
Arjun works in Bengaluru. Monthly: Basic ₹60,000, no DA, HRA ₹24,000. Rent paid: ₹22,000/month.
| Step | Amount |
|---|---|
| Annual HRA received | ₹24,000 × 12 = ₹2,88,000 |
| 40% of Basic — Non-metro city | 40% × ₹60,000 × 12 = 40% × ₹7,20,000 = ₹2,88,000 |
| Annual rent paid | ₹22,000 × 12 = ₹2,64,000 |
| Less: 10% of Basic | 10% × ₹7,20,000 = ₹72,000 |
| Rent paid minus 10% of salary | ₹2,64,000 − ₹72,000 = ₹1,92,000 |
| Least of three amounts | min(₹2,88,000 ; ₹2,88,000 ; ₹1,92,000) = ₹1,92,000 |
| HRA exempt from tax | ₹1,92,000 |
| Taxable HRA | ₹2,88,000 − ₹1,92,000 = ₹96,000 added to taxable income |
HRA Is Only Available Under the Old Tax Regime
HRA exemption under Section 10(13A) is not available if you choose the new tax regime under Section 115BAC. The new regime offers lower slab rates in exchange for giving up exemptions.
| Feature | Old Tax Regime | New Tax Regime |
|---|---|---|
| HRA exemption | ✅ Available — up to actual HRA or the least-of-three calculation | ❌ Not available — full HRA is added to taxable income |
| Standard deduction (salary) | ✅ ₹50,000 | ✅ ₹75,000 |
| Section 80C | ✅ Up to ₹1.5 lakh | ❌ Not available |
| Section 24B (home loan interest) | ✅ Up to ₹2 lakh (self-occupied) | ❌ Not available for self-occupied |
| Who should choose old regime | Those with HRA + 80C + home loan + 80D adding up to ₹5L+ in deductions | Those with minimal deductions or rent paid is very low |
Paying Rent to Parents — Fully Allowed
You can legitimately pay rent to your parents and claim HRA exemption on it. This is widely used and accepted by the Income Tax Department, provided it is genuine.
Execute a rent agreement (notarised or on stamp paper) between you and your parent(s)
Pay rent by bank transfer/cheque — cash payments are harder to prove and may be questioned
Your parents must declare the rent as 'Income from House Property' in their own ITR
If your parent's income is below the basic exemption limit (₹3L/₹5L for seniors), they may pay little or no tax on it — family tax saving benefit
Annual rent > ₹1L: provide your parent's PAN to your employer for Form 16
Paying rent to SPOUSE is not allowed — Income Tax Department treats it as non-genuine
Tax Benefit — Rent to Parents Example
Vijay pays ₹15,000/month rent to his mother (retired, no other income). His annual rent = ₹1,80,000.
Vijay's HRA exemption (assume Delhi, Basic ₹50K): ₹1,26,000 (calculated using the formula)
Vijay saves tax: ₹1,26,000 × 30% = ₹37,800 per year
Mother's tax on ₹1,80,000 rent income: after 30% standard deduction (Sec 24) = ₹1,26,000 taxable. As a senior citizen (age 60+) with basic exemption ₹3L — nil tax
Net family saving: ₹37,800 with zero additional tax paid by mother
When Is Landlord PAN Mandatory?
If annual rent paid exceeds ₹1,00,000 (i.e., monthly rent > ₹8,333), you must provide landlord's PAN to your employer
Employer includes this in Form 16 and reports it to the Income Tax Department
If landlord refuses to give PAN: you can still claim HRA exemption but must submit a declaration from the landlord that they don't have a PAN
Rent receipts: required monthly for rent ≤ ₹3,000/month; quarterly receipts acceptable for higher rent
Rent receipts should have landlord's name, address, amount received, period, and signature (revenue stamp if cash)
TDS on Rent — Section 194IB (Tenant's Obligation)
| Condition | TDS Rate | When to Deduct |
|---|---|---|
| Monthly rent > ₹50,000 | 5% on total rent for the year | Last month of FY or when vacating |
| Monthly rent ≤ ₹50,000 | No TDS required | N/A |
| Landlord has no PAN | 10% (higher rate) | Last month of FY |
| How to deposit TDS | Form 26QC on TIN-NSDL portal | Within 30 days of end of FY |
Who Can Claim Section 80GG?
Section 80GG is for taxpayers who do NOT receive HRA as part of their salary but pay rent. This includes self-employed individuals, freelancers, and salaried employees whose salary structure has no HRA component.
Must not own a residential property anywhere in India (self, spouse, or minor child)
Must not receive HRA from employer in any form
Must be paying rent for residential accommodation
Must file Form 10BA with your ITR declaring no other residential property
Available under the old tax regime only — not under new regime
Section 80GG — Deduction Formula
The deduction is the LEAST of three amounts:
| Amount | Notes |
|---|---|
| ₹5,000 per month (₹60,000 per year) | Fixed cap — maximum possible under 80GG |
| 25% of total income (before this deduction) | Calculated on adjusted total income |
| Rent paid minus 10% of total income | Same as HRA formula but using 'total income' instead of Basic salary |
Yes — Both Can Be Claimed Simultaneously Under These Conditions
Many taxpayers assume you cannot claim HRA exemption if you have a home loan. This is incorrect — you can claim both, provided certain conditions are met.
Condition 1: The house you own is in a different city from where you work and rent — e.g., you own a house in Lucknow but work and rent in Mumbai
Condition 2: You own a house in the same city but it is let out (rented to someone else) — you must include rental income in your ITR
Condition 3: You own a house under construction — you live on rent while the new house is being built; HRA + Section 24B pre-construction interest both allowed
NOT allowed: You own a house in the same city where you work AND live in it, but still claim HRA (you're not actually paying rent for accommodation)
Under old regime: claim HRA exemption (Sec 10(13A)) + Section 24B home loan interest deduction (up to ₹2L for self-occupied) + Section 80C principal repayment
Common Scenario — Work in Mumbai, Home Loan in Hometown
You took a home loan for a house in your hometown (Patna) where your family lives
You rent an apartment in Mumbai for ₹25,000/month for work
You can claim HRA exemption on Mumbai rent under Section 10(13A)
You can also claim Section 24B deduction (up to ₹2L) on the Patna home loan interest if it is self-occupied by family
And Section 80C for the principal repayment on the Patna home loan
Total deduction potential: HRA exemption + ₹2L (Sec 24B) + ₹1.5L (Sec 80C) — all under old regime
What is the HRA exemption formula for FY 2025-26?
HRA exemption is the lowest of: (1) Actual HRA received from employer, (2) 50% of Basic+DA if you live in Delhi/Mumbai/Kolkata/Chennai or 40% of Basic+DA for all other cities, and (3) Rent actually paid minus 10% of Basic+DA. This calculation is done annually and the lowest of the three is exempt from income tax.
Which cities qualify for 50% HRA exemption?
Only four cities qualify for 50% of Basic salary for HRA: Delhi, Mumbai, Kolkata, and Chennai. All other cities including Bengaluru, Hyderabad, Pune, Ahmedabad, Gurugram, Noida, and all other cities get 40% of Basic salary. This is often misunderstood — Bengaluru is NOT a metro for HRA purposes.
Can I claim HRA exemption under the new tax regime?
No. HRA exemption under Section 10(13A) is not available under the new tax regime (Section 115BAC). If you opt for the new regime, the entire HRA received from your employer is added to your taxable salary. To claim HRA exemption, you must file under the old tax regime.
Can I pay rent to my parents and claim HRA?
Yes, paying rent to parents is allowed and accepted by the Income Tax Department, provided it is genuine. You need a proper rent agreement, bank transfer proofs, and your parents must declare the rent received as income from house property in their own ITR. Rent to spouse is not allowed.
Is landlord's PAN mandatory for HRA?
Yes, if your annual rent exceeds ₹1,00,000 (more than ₹8,333/month), you must provide your landlord's PAN to your employer. If the landlord doesn't have a PAN, you need a written declaration from them. Without PAN, your employer may not grant the HRA exemption via Form 16.
What if my salary has no HRA component?
If your salary structure doesn't include an HRA component, you can claim deduction under Section 80GG (old regime only). The deduction is the least of: ₹5,000/month, 25% of total income, or rent paid minus 10% of total income. You must file Form 10BA and not own any residential property anywhere in India.
Can I claim both HRA exemption and home loan deduction?
Yes, both can be claimed simultaneously if the rented house and owned house are in different cities, or if your owned house is rented out to someone else and you rent another place to live. You cannot claim HRA if you own a house in the same city where you work and live in it rent-free.
What documents are needed for HRA exemption?
Keep: (1) Rent receipts for each month with landlord's name, address, amount, period, and signature; (2) Rental agreement; (3) Landlord's PAN if annual rent exceeds ₹1 lakh; (4) Bank transfer statements as proof of payment. For rent to parents: also keep the rent agreement separately and confirm they declare it in their ITR.
How much TDS do I need to deduct if rent exceeds ₹50,000/month?
If you are an individual/HUF paying rent exceeding ₹50,000/month, you must deduct 5% TDS under Section 194IB. Deduct once per year — at the end of the financial year (March) or when vacating. File Form 26QC on the TIN-NSDL portal within 30 days. If the landlord has no PAN, TDS rate is 10%.
What if HRA received is more than rent paid?
If your HRA received is more than the rent you actually pay, the excess HRA is taxable. For example, if you receive HRA of ₹18,000/month but only pay rent of ₹10,000/month, after the calculation the taxable portion of HRA increases. In this case, you should negotiate with your employer to restructure the salary so less goes into HRA and more into other components.