HRA exemption: the three tests, and why rent decides everything
Last updated: 2026-08-14
House rent allowance is usually the largest deduction available under the old tax regime, and it is the one most often calculated wrongly. The exemption is not your HRA component, and it is not 50 per cent of your basic. It is the least of three separate figures, and one of them depends entirely on rent you actually pay.
The three tests
Under Section 10(13A) read with Rule 2A, the exempt amount is the smallest of:
- The house rent allowance you actually received
- Rent you paid, minus 10 per cent of salary
- 50 per cent of salary in a metro, or 40 per cent elsewhere
"Salary" here means basic pay plus dearness allowance that forms part of retirement benefits, plus commission on turnover at a fixed percentage. For most salaried people it is simply basic.
| Test | Working | Amount |
|---|---|---|
| Actual HRA received | As per salary structure | Rs 2,40,000 |
| Rent less 10% of salary | Rs 2,40,000 − Rs 60,000 | Rs 1,80,000 |
| Metro cap | 50% of Rs 6,00,000 | Rs 3,00,000 |
| Exemption allowed | The least of the three | Rs 1,80,000 |
No rent means no exemption
If you pay no rent, the second test becomes rent minus 10 per cent of salary, which is negative and therefore nil. The least of three figures where one is nil is nil. Your HRA component is then fully taxable however large it is.
This is the single most common error in published salary calculators: a tool that never asks what rent you pay cannot evaluate the second test, so it applies the metro cap alone and reports an exemption you are not entitled to. On the example above that is the difference between Rs 1,80,000 and Rs 3,00,000 of exempt income.
Only four cities are metros
For this rule, metro means Delhi, Mumbai, Kolkata and Chennai. That is the complete list.
| City | Rate for the third test |
|---|---|
| Delhi, Mumbai, Kolkata, Chennai | 50% of salary |
| Bengaluru | 40% of salary |
| Hyderabad | 40% of salary |
| Pune | 40% of salary |
| Gurugram and Noida | 40% of salary |
Bengaluru, Hyderabad, Pune and Gurugram are non-metro for HRA no matter what rents are like there. The classification comes from the rule, not from cost of living, and it has not moved with the cities.
Common questions
Can I claim HRA under the new tax regime?
No. The Section 10(13A) exemption is available only under the old regime. Under the new regime your HRA component is ordinary taxable salary.
Can I claim HRA on rent paid to a parent?
It is permitted where the arrangement is genuine: the parent must own the property, must actually receive the rent, and must declare it as their own income. Documentation matters, because this is a frequently examined claim.
Do I need a landlord PAN?
Where annual rent exceeds Rs 1,00,000 employers generally require the landlord PAN before allowing the exemption in payroll. Without it your employer may decline the claim even though you can still make it when filing.
What if I live in a company-provided flat?
Then you are not paying rent and there is no HRA exemption. Rent-free or concessional accommodation is instead valued as a perquisite and added to your taxable salary.
Test your own figures on the in-hand salary calculator, which shows all three tests and which one binds, or compare regimes on the regime calculator.
How rent changes the exemption
The second test is the one that usually binds, so the exemption tracks rent paid far more closely than it tracks the HRA component.
| Monthly rent | Test 2: rent less 10% of salary | Exemption allowed |
|---|---|---|
| Rs 0 | Rs 0 | Rs 0 |
| Rs 10,000 | Rs 60,000 | Rs 60,000 |
| Rs 20,000 | Rs 1,80,000 | Rs 1,80,000 |
| Rs 30,000 | Rs 3,00,000 | Rs 2,40,000 |
At Rs 30,000 a month the second test stops binding and the exemption is capped by the HRA actually received. Paying more rent beyond that point adds nothing to the exemption.
Related reading
The rest of this series, and the calculators that let you run the idea on your own numbers.
More india salary and tax guides
Try it with your figures
See also all guides, every calculator, and the calculation methodology behind these estimates.