HRA Exemption Rules 2026-27: How Much of Your HRA Is Tax-Free

House rent allowance (HRA) is the largest tax break for many salaried people who rent. It applies only under the old tax regime; the new regime taxes HRA in full. Here's how the exemption is calculated and the rules that trip people up.

The formula: the lowest of three amounts

The tax-free part of your HRA is the lowest of:

1. The HRA you actually received in the year.
2. 50% of basic pay + DA if you live in a metro city, or 40% elsewhere.
3. Rent paid minus 10% of basic pay + DA.

Whatever HRA is left above that amount is added to your taxable salary.

Worked examples

Take a yearly basic pay of ₹6,00,000 and HRA of ₹3,00,000.

For most people the rent decides the exemption: the first ₹60,000 of rent here (10% of basic) earns no exemption at all. Living in a metro only matters once your rent is high enough to hit the 40% cap.

Which cities count as metro?

Until 2025-26, only Delhi, Mumbai, Kolkata and Chennai counted. From tax year 2026-27, Bengaluru, Hyderabad, Pune and Ahmedabad also qualify for the 50% limit. If you live in one of these cities, recheck your exemption, because it can now be larger.

Rules that catch people out

• Landlord's PAN. If your rent is more than ₹1,00,000 a year, your employer will ask for your landlord's PAN. Without it, the exemption can be refused.
• Rent receipts or an agreement are needed as proof. Keep bank transfers rather than cash payments as evidence.
• Paying rent to your parents is allowed if they own the house and actually receive the rent. They must show it as income in their own return. Rent paid to a spouse is generally not accepted.
• You can claim HRA and home loan interest together, for example if your own house is in another city or is let out, as long as the facts are genuine.
• Missed it in your payslip? You can still claim the exemption when filing your return under the old regime, with the same proof.

No HRA in your salary?

If your employer doesn't pay HRA, for example if you're self-employed or your salary has no HRA component, you may be able to claim a separate deduction for rent (known as 80GG). It's capped at ₹5,000 a month (₹60,000 a year) and is available only under the old regime, if neither you nor your family owns a house where you live.

Is HRA worth choosing the old regime for?

Sometimes. HRA is usually the deduction that makes the old regime worthwhile, especially with high metro rents and a home loan elsewhere. But for many salaries the new regime still wins even with HRA; see income tax on a ₹15 lakh salary for a worked comparison.

Calculate your HRA exemption

Enter your basic pay, HRA, rent and city in the HRA exemption calculator to see the tax-free and taxable parts. Then add the exemption to the income tax calculator to compare both regimes.

This guide covers salaried individuals. Keep proof of rent for the whole year in case the tax department asks for it.