HRA Exemption Guide: Section 10(13A) Calculation, Metro Rules, Documentation

HRA is the most-claimed deduction in Indian tax filings, and the most-mistranscribed. Most employees know they can claim “some of the HRA” tax-free, fewer know the formula, and almost none know that the metro definition for HRA still uses 1978 city boundaries.

HRA full form and where it lives

HRA = House Rent Allowance.It's a salary component employers pay to help employees afford rent. On most Indian payslips it's a separate line item, typically 40–50% of Basic salary.

Section 10(13A) of the Income Tax Act lets you claim a tax exemption on the HRA you receive — but only the smaller of three values, and only if you actually pay rent. The remaining HRA is fully taxable as salary.

The three-way least

Annual HRA exemption = MIN of three values:

1. Actual HRA received from employer (annual)
2. Rent paid annually − 10% of (Basic + DA)
3. 50% of (Basic + DA) if you live in a metro (Delhi / Mumbai / Kolkata / Chennai), or 40% of (Basic + DA) if non-metro

Whichever is smallest is your tax-exempt HRA. The remainder is taxable.

Plug your numbers into our HRA Calculator for the exact figure.

The metro question (it's narrower than you think)

The Income Tax Act's “metro” definition is from 1978 and has not been updated. Only four cities qualify for the 50% rate:

• Delhi (and surrounding NCR areas like Gurgaon, Noida, Ghaziabad)
• Mumbai
• Kolkata
• Chennai

That's it. Bangalore, Hyderabad, Pune, Ahmedabad, Surat, Jaipur, Lucknow, Kochi — none qualify, despite being economically larger than Kolkata or Chennai today. Use the 40% rate for these. Yes, this is irrational; no, the IT department has not corrected it. Plan your math accordingly.

Worked example: Bangalore-based engineer

Rohit works in Bangalore. Monthly Basic ₹40,000, HRA received ₹16,000, Rent paid ₹18,000. Annual numbers: Basic ₹4.8L, HRA ₹1.92L, Rent ₹2.16L.

• (1) Actual HRA received: ₹1,92,000
• (2) Rent − 10% basic: ₹2,16,000 − ₹48,000 = ₹1,68,000
• (3) 40% of basic (non-metro): ₹1,92,000
• Exempt HRA = MIN(₹1.92L, ₹1.68L, ₹1.92L) = ₹1,68,000
• Taxable HRA = ₹1,92,000 − ₹1,68,000 = ₹24,000

At Rohit's 30% slab, this saves him ~₹52,000/year in taxes. Worth doing the paperwork.

Worked example: Delhi vs Bangalore at same salary

Same salary structure, different city. Mumbai/Delhi at 50% rule vs Bangalore at 40%:

• Delhi (50%): Constraint (3) becomes ₹2.4L. Effective binding constraint is still (2) at ₹1.68L. Exempt = ₹1.68L.
• Bangalore (40%): Same outcome. Exempt = ₹1.68L.

At Rohit's salary level, the metro rule doesn't change the answer because constraint (2) — rent minus 10% of basic — binds first. The metro distinction matters only when rent paid is high enough that constraint (2) doesn't bind.

Documentation that survives scrutiny

HRA claims need three layers of proof:

• Rent agreement, especially if monthly rent > ₹3,000. Stamp paper preferred (₹100). Soft copy is OK for self-storage but originals required if disputed.
• Rent receipts — monthly or quarterly, signed by landlord, mentioning amount + period + landlord PAN (if rent > ₹1L/year).
• Landlord PAN if your annual rent exceeds ₹1,00,000. Without PAN, the employer cannot allow the exemption — and you get an unexpected TDS hit. If landlord refuses to give PAN, ask for Form 60.

Keep these for 7 years (general tax-record retention). Most scrutiny notices arrive 1-3 years post-filing.

HRA in the new tax regime: not allowed

The new tax regime (default since FY 2023-24) does not allow HRA exemption. If you're a renter with significant HRA exempt, the old regime is usually better. Run both via our Income Tax Calculator to see your specific math.

See Old vs New Tax Regime AY 2025-26 for breakeven analysis.

Edge cases and common questions

Can I claim HRA when paying rent to my parents? Yes, but with caveats: there must be a rent agreement, parents must declare the rent as income in their ITR, and the rent must be at fair market value. Income tax officers actively check these for collusion (e.g. rent of ₹50k/mo paid to retired parents who declared zero rental income).

Can I claim HRA if I own a house in another city?Yes — the IT Act doesn't require you to be homeless. If you own a house in Mumbai but live in Bangalore on rent for work, you can claim HRA on the Bangalore rent. Many CAs incorrectly tell clients this disqualifies them.

Can I claim both HRA and home loan deduction?Yes, in most cases. If your owned home is in a different city / let out / under construction, you can claim home loan interest under Section 24 AND HRA on your rented residence. If you live in the owned home, you cannot claim HRA (it's “self-occupied”).

HRA without rent receipts (rent ≤ ₹3000)? Technically allowed under the IT Act for low rents but employers usually demand receipts regardless. Generate them on a stamp paper and ask landlord to sign.

Use our HRA Calculator to compute your exact exemption, then use the Income Tax Calculator to see how it shifts your overall tax under each regime.