🧾 Tax PlanningHRA exemption rules explained with examples
HRA exemption trips people up because it isn't one number — it's the lowest of three separate calculations. Here's how each one works, with the metro/non-metro distinction that changes the answer.
📖 5 min readThe exemption is the lowest of three amounts
Under Section 10(13A) (old tax regime only), your HRA exemption is the smallest of: (1) the actual HRA you receive from your employer, (2) rent paid minus 10% of basic salary (plus dearness allowance, if any), and (3) 50% of basic salary if you live in a metro city, or 40% if you don't.
Because it's a "lowest of" rule, simply receiving a large HRA from your employer doesn't guarantee a large exemption — the rent you actually pay, and where you live, both cap it independently.
Why the city you live in changes the answer
The metro rate (50% of basic) applies to Delhi, Mumbai, Kolkata and Chennai; every other city uses the non-metro rate (40% of basic). This is based on where you actually reside and work, not where your employer is headquartered.
Two people with identical salary, HRA and rent can end up with different exemptions purely because one lives in a metro and the other doesn't — the non-metro person's exemption is capped 10 percentage points lower.
A worked example
Say your basic salary is ₹50,000/month, HRA received is ₹25,000/month, rent paid is ₹22,000/month, and you live in a non-metro city. The three numbers are: HRA received = ₹25,000; rent minus 10% of basic (₹22,000 − ₹5,000) = ₹17,000; and 40% of basic = ₹20,000. The exemption is the lowest of the three — ₹17,000/month — even though your employer pays ₹25,000 in HRA.
Frequently Asked Questions
Can I claim HRA if I live in my own house?
No. HRA exemption requires you to actually pay rent for the accommodation you live in. If you own the house you live in (no rent paid), you can't claim HRA exemption on it, even if your salary includes an HRA component.
Can I claim HRA and a home loan deduction at the same time?
Yes, in specific situations — for example, if you rent a home in the city where you work while your own home (bought with a loan) is in another city and is vacant or occupied by family, you may be able to claim HRA exemption on the rent paid and Section 24(b) interest deduction on the home loan simultaneously. This is scrutinized closely, so keep clear documentation (rent receipts, loan statements) and ideally confirm with a tax professional.
Is HRA exemption available under the new tax regime?
No — HRA exemption is only available under the old tax regime. If a large HRA exemption is central to your tax planning, that's a strong point in favor of sticking with the old regime; see our comparison of the old vs new tax regime for the full picture.
