House Rent Allowance (HRA) exemption under Section 10(13A) of the Income Tax Act can save you ₹40,000 to ₹1,20,000 in tax annually — making it one of the most valuable deductions under the old tax regime. But the calculation isn't straightforward: it's the lowest of three different values, varies by metro vs non-metro city, and requires proper documentation. Most taxpayers either under-claim (losing money) or over-claim (risking notices). This guide shows you the exact formula with verified examples for every salary level.
Important: HRA exemption is available only under the old tax regime. If you choose the new tax regime (Section 115BAC), the entire HRA is fully taxable. Compare both regimes before deciding — HRA is often the single biggest factor in that choice.
Exempt HRA = Lowest of: (a) Actual HRA received | (b) 50% of Basic+DA (metro) or 40% (non-metro) | (c) Rent paid minus 10% of Basic+DA. Metro cities: Delhi, Mumbai, Kolkata, Chennai only. All others = non-metro (including Bangalore, Hyderabad, Pune). Use our HRA Calculator for instant computation.
Worked Examples: Metro vs Non-Metro (Verified)
| Scenario | Basic+DA (Annual) | HRA Received | Rent Paid | (a) Actual HRA | (b) 50%/40% | (c) Rent-10% | Exempt HRA | Tax Saved (30%) |
|---|---|---|---|---|---|---|---|---|
| Metro ₹50K basic | ₹6.00L | ₹2.40L | ₹3.00L | ₹2.40L | ₹3.00L | ₹2.40L | ₹2.40L | ₹74,880 |
| Metro ₹80K basic | ₹9.60L | ₹4.20L | ₹4.80L | ₹4.20L | ₹4.80L | ₹3.84L | ₹3.84L | ₹1,19,808 |
| Non-metro ₹40K basic | ₹4.80L | ₹1.92L | ₹1.80L | ₹1.92L | ₹1.92L | ₹1.32L | ₹1.32L | ₹41,184 |
| Non-metro ₹50K basic | ₹6.00L | ₹2.40L | ₹2.40L | ₹2.40L | ₹2.40L | ₹1.80L | ₹1.80L | ₹56,160 |
| Metro ₹30K+₹5K DA | ₹4.20L | ₹1.44L | ₹1.80L | ₹1.44L | ₹2.10L | ₹1.38L | ₹1.38L | ₹43,056 |
Key patterns: In metros, factor (c) — rent minus 10% of salary — is usually the binding constraint. In non-metros, the 40% limit (factor b) often restricts exemption even when rent is high. The 10% deduction from rent (factor c) means your rent must exceed 10% of Basic+DA for any exemption at all. For government employees with Dearness Allowance, DA is added to Basic for calculation — increasing the exemption base. Use our HRA Calculator to compute your exact exemption.
Tax Saved by HRA Exemption at Each Bracket
| HRA Exempt Amount | 5% Bracket (+ cess) | 20% Bracket (+ cess) | 30% Bracket (+ cess) |
|---|---|---|---|
| ₹1.00 lakh | ₹5,200 | ₹20,800 | ₹31,200 |
| ₹2.00 lakh | ₹10,400 | ₹41,600 | ₹62,400 |
| ₹2.40 lakh | ₹12,480 | ₹49,920 | ₹74,880 |
| ₹3.00 lakh | ₹15,600 | ₹62,400 | ₹93,600 |
| ₹4.00 lakh | ₹20,800 | ₹83,200 | ₹1,24,800 |
At the 30% bracket, even ₹2.40 lakh HRA exemption saves ₹74,880 — almost ₹75,000 per year. This alone can be the difference between the old regime being cheaper or the new regime winning. For old vs new regime break-even calculation, HRA exemption is a critical variable. Combined with Section 80C (₹1.5L), 80D (₹25K-50K), and NPS 80CCD(1B) (₹50K), HRA pushes the old regime's total deductions to ₹4-6 lakh — enough to beat the new regime at ₹15 lakh+ salary.
Calculate Your HRA Exemption
Enter your basic salary, HRA, rent, and city to see exact exempt amount and tax savings.
Open HRA Calculator →Smart HRA Strategies Most Taxpayers Miss
| Strategy | How It Works | Tax Benefit | Requirement |
|---|---|---|---|
| Pay rent to parents | Rent goes to parent in lower tax bracket; you claim HRA exemption at higher bracket | Net family tax saving ₹30,000-75,000 | Rental agreement, bank transfers, parent's PAN, parent declares income |
| HRA + home loan together | Own house in hometown (claim Sec 24(b) ₹2L interest), rent in work city (claim HRA) | Combined ₹4-6L deduction | Houses in different cities, both genuine |
| Restructure salary for higher HRA | Ask employer to increase HRA component in CTC (reduces other components) | Higher exempt portion of salary | Employer willing to restructure |
| Section 80GG (if no HRA in CTC) | Self-employed or CTC without HRA can claim ₹5,000/month under 80GG | Up to ₹60,000/year deduction | File Form 10BA, no owned house in work city |
The rent-to-parents strategy is the most impactful: if your parent has no other income (or is in the 0-5% bracket), the rent you pay them is either untaxed or taxed at 5%, while you save at 30%. On ₹2.4 lakh HRA exemption, family saves approximately ₹62,400 net. This is completely legal — just maintain proper documentation. For the full financial planning picture, also check your salary hike vs inflation, understand real rate of return, and plan your retirement corpus. Other tax-saving options: NPS vs PPF vs EPF, capital gains tax, and SSY for girl child. Use our Income Tax Calculator, EMI Calculator, SIP Calculator, Inflation Calculator, and Purchasing Power Calculator. Explore 7 strategies to beat inflation, FD real returns, cost of delay, and mutual fund real returns.