House Rent Allowance (HRA) is one of the most valuable tax exemptions for salaried renters — it can shave tens of thousands of rupees off your tax bill. But only a portion of your HRA is exempt, and you have to calculate it correctly. Here's the exact formula with worked examples for 2026.
The HRA Exemption Formula
The exempt amount is the lowest of these three:
- Actual HRA received from your employer
- 50% of basic salary (metro / 50%-city) or 40% (non-metro)
- Actual rent paid − 10% of basic salary
Whichever is smallest is tax-free. The remaining HRA is added to your taxable income.
The Updated 50% City List (8 Cities)
Previously only the four big metros got 50%. The 50% benefit now extends to 8 cities:
| 50% of basic (8 cities) | 40% of basic (all others) |
|---|---|
| Delhi, Mumbai, Kolkata, Chennai, Bengaluru, Hyderabad, Pune, Ahmedabad | Every other city / town |
Worked Example
Suppose you live in Bengaluru with:
- Basic salary: ₹50,000/month → ₹6,00,000/year
- HRA received: ₹20,000/month → ₹2,40,000/year
- Rent paid: ₹18,000/month → ₹2,16,000/year
Now compute the three amounts:
| Rule | Calculation | Amount |
|---|---|---|
| Actual HRA | — | ₹2,40,000 |
| 50% of basic (Bengaluru) | 50% × 6,00,000 | ₹3,00,000 |
| Rent − 10% of basic | 2,16,000 − 60,000 | ₹1,56,000 |
The lowest is ₹1,56,000 — that's your exempt HRA. The balance of ₹84,000 (2,40,000 − 1,56,000) is taxable.
Important: Old Regime Only
HRA exemption is not available under the new tax regime. If you pay significant rent, the old regime may leave more money in your pocket — especially combined with 80C and home loan deductions. Always compare both before filing using our new vs old tax regime guide.
Documents You Need
- Rent receipts for the year.
- Landlord's PAN if annual rent exceeds ₹1 lakh.
- Ideally, rent paid via bank transfer for a clear trail.
See the Tax Impact
Once you know your exempt HRA, plug your income into our Income Tax Calculator to see your tax under both regimes. Renting while planning to buy? Compare against owning with the Home Loan EMI Calculator and our guide to home loan tax benefits.