How to Claim HRA: The Three-Way Rule With Worked Examples

What HRA exemption is, and who it is for

House Rent Allowance (HRA) is a component of salary that many employers pay so that you can afford rented housing. By default it is taxable, like the rest of your salary. If you actually pay rent, the law lets you exclude part of it from taxable income. That excluded part is the HRA exemption, and claiming it can cut your tax noticeably if you are in the old tax regime.

This post is general information to help you understand the rule and use our calculators. It is not tax or legal advice, and you should confirm the current rules with your employer's payroll team or a tax professional before filing.

Two conditions matter before any maths. First, you must really pay rent for the period you claim. Second, the exemption is a feature of the old tax regime. If you have opted for the new regime, the tool and the rule described here will not reduce your tax, which we come back to near the end.

The three-way rule

The exemption is the lowest of three amounts:

1. The HRA your employer actually paid you.
2. Rent you paid, minus 10% of your basic salary.
3. 50% of basic salary if you live in a metro city, or 40% if you do not.

Whatever part of your HRA is not exempt is added to your taxable salary. The traditional metro list for the 50% rate is Delhi, Mumbai, Kolkata and Chennai; if you live in another large city, check what your employer's payroll treats as a metro before assuming 50% applies. In our HRA calculator you simply choose yes or no for metro, and the tool applies 50% or 40% accordingly.

"Salary" in this rule is basic pay, plus dearness allowance if it forms part of retirement benefits, plus commission fixed as a percentage of turnover. Our tool has a single basic field, so if DA applies to you, add it to basic before you enter it. Use the same period for every field: all monthly or all yearly.

Worked example 1: the HRA received is the limit

Basic salary Rs. 50,000 a month, HRA received Rs. 20,000, rent Rs. 25,000, metro city. The numbers below come from a script that mirrors the tool's formula.

Test	Amount (Rs.)
HRA received	20,000
Rent minus 10% of basic (25,000 − 5,000)	20,000
50% of basic	25,000
Exemption (lowest)	20,000

The whole HRA is exempt and taxable HRA is zero. Raising your rent will not help here, because the HRA received is the binding limit.

Worked example 2: the rent is the limit

Now take basic Rs. 50,000, HRA received Rs. 25,000, rent Rs. 18,000, metro city. The three amounts are 25,000, 13,000 (18,000 − 5,000) and 25,000. The exemption is Rs. 13,000 a month, and Rs. 12,000 of HRA is taxable. Here the rent paid decides the result, so paying a higher rent, if you genuinely do, would increase the exemption until it reaches one of the other two caps.

Worked example 3: metro versus non-metro

Basic Rs. 60,000, HRA received Rs. 30,000, rent Rs. 28,000. In a non-metro city the amounts are 30,000, 22,000 (28,000 − 6,000) and 24,000 (40% of basic), so the exemption is Rs. 22,000. In a metro city the third amount becomes 30,000, but the lowest is still Rs. 22,000. The metro status did not change the answer because the rent test was already the lowest. This is a useful habit: identify which of the three is binding before worrying about the other two.

A fourth case is worth knowing. With basic Rs. 50,000 and rent of only Rs. 4,000, rent minus 10% of basic is below zero, and the tool treats it as zero. The exemption is zero and the entire HRA is taxable. Paying very little rent relative to salary gives you no HRA benefit at all.

How to see what the exemption is worth

The exemption lowers taxable income, so its value is your marginal tax rate times the exempt amount, plus 4% cess. Our HRA exemption calculator shows the exempt and taxable parts. To compare regimes, you also need your total deductions. Our income tax calculator works for the new regime only; it does not compute old-regime tax. So to compare the two regimes for yourself, you would calculate old-regime tax by hand or with your employer's declaration worksheet, using the exemption from the HRA tool, and then compare it with the new-regime figure from the income tax tool.

As an illustration of the new-regime side: under the slabs the tool uses (nil up to Rs. 4 lakh, then 5%, 10%, 15%, 20%, 25% and 30% in Rs. 4 lakh steps, with a Rs. 75,000 standard deduction for salaried people and a rebate that makes tax nil up to Rs. 12 lakh of taxable income), a salaried person with Rs. 12.75 lakh gross pays no tax at all. HRA cannot improve on zero, so for lower and middle salaries the new regime often wins without any HRA claim. These slab figures matched reputable coverage of the Union Budget 2025 when we checked, but rates are revised, so confirm the current ones on the Income Tax Department website.

Paperwork you need

• Rent receipts or a rent agreement. Employers usually ask for these when you declare investments or HRA, and you should keep them in case of a query later.
• Landlord's PAN when rent is large. If the rent you pay in a year exceeds Rs. 1,00,000, you are expected to provide the landlord's PAN. If the landlord has no PAN, a declaration is generally accepted, but ask your employer what it needs.
• Rent paid to a parent. This can be claimed if you genuinely pay it, ideally by bank transfer, and the parent declares it as rental income. Do not invent an arrangement just to claim HRA.
• Same-period consistency. If you moved or changed jobs mid-year, calculate each period with its own rent and its own HRA.

Limits: what this calculator does not cover

• It takes one basic figure and one HRA figure. It does not combine several periods, so for a year with a job change or a rent change, run it separately for each period and add the results.
• It does not add dearness allowance for you. Include it in the basic you type if it counts as salary for this purpose.
• It does not check your city. You pick metro yes or no yourself.
• It does not check rent receipts, PAN rules or whether you are in the old or new regime. It always computes the old-regime formula, even if you are in the new regime and would not receive the exemption.
• If you receive no HRA at all but pay rent, a separate deduction exists in the old regime for that situation. Our tool does not calculate it.
• Tax rules change. Treat the output as a planning estimate, not a filed figure.

A short checklist before you declare HRA

1. Confirm you are in the old regime for this year, or compare both regimes with your actual deductions.
2. Enter basic (plus DA where applicable), HRA received and rent for the same period.
3. Note which of the three amounts is lowest; that tells you whether rent, HRA or city type is what limits you.
4. Collect receipts, and the landlord's PAN if annual rent exceeds Rs. 1 lakh.
5. Submit the declaration to your employer and keep a copy.