House Rent Allowance is a common part of a salary structure in India, and its tax exemption is one of the most misunderstood parts of a payslip — mostly because people assume it's a single formula, when it's actually the smallest of three separate calculations.
The exemption is a minimum of three numbers
Under Section 10(13A), your exempt HRA for the year is whichever of these three figures is smallest:
- Actual HRA received from your employer over the year.
- Rent paid, minus 10% of (basic salary + dearness allowance) — rent that's less than 10% of your basic+DA contributes nothing to the exemption at all.
- 50% of basic salary + DA if you live in a metro city, or 40% if you don't.
Whichever of the three comes out lowest is what actually limits your exemption — the other two numbers don't matter once that's determined. This is the single most common source of confusion: someone assumes their exemption equals their full HRA received, when in reality the rent-minus-10% figure, or the city-percentage figure, was smaller and capped it well below that.
A worked example
Say your monthly basic salary is ₹40,000, DA is ₹0, you receive ₹20,000/month HRA, pay ₹18,000/month rent, and live in a metro city. Annualized: basic+DA is ₹4,80,000, HRA received is ₹2,40,000, rent paid is ₹2,16,000.
- Actual HRA received: ₹2,40,000
- Rent minus 10% of basic+DA: ₹2,16,000 − ₹48,000 = ₹1,68,000
- 50% of basic+DA (metro): ₹2,40,000
The smallest of the three is ₹1,68,000 — so that's the exempt amount, even though ₹2,40,000 of actual HRA was received. The remaining ₹72,000 is taxable HRA, added back to taxable income.
Old regime only
This exemption is only available if you're filing under the old tax regime — the new regime doesn't allow HRA exemption at all, one of many deductions it strips out in exchange for lower headline rates. It's worth factoring into an old-vs-new regime comparison if you pay significant rent.
Using the tool
Our HRA Exemption Calculator runs all three figures for you from your basic salary, DA, HRA received, rent paid, and city type, and tells you directly which of the three is limiting your exemption — so you know exactly why the number came out the way it did, not just what the number is. Pair it with our Rent Receipt Generator if you need signed receipts to actually claim it.
Try it here: HRA Exemption Calculator.