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Guide

HRA Exemption Explained: The Lowest-of-Three Rule With an Example

Updated November 13, 2026 · 2 min read

House rent allowance (HRA) is a part of your salary meant to help with rent. Part of it can be tax free if you pay rent. The exemption is worked out as the lowest of three amounts, and it applies under the old tax regime only.

The HRA exemption calculator does the sum for you. Rules change, so check the current position before you file.

The three amounts

All three are worked out per month, using your basic salary plus DA.

  1. Actual HRA you receive from your employer.
  2. Rent paid minus 10% of basic salary. If this is negative, it counts as nil.
  3. 50% of basic salary if you live in a metro city, or 40% of basic salary if you do not.

The exempt part is the lowest of the three. The rest of your HRA is added to your taxable income.

In the calculator, Delhi, Mumbai, Kolkata, Chennai, Bengaluru, Hyderabad, Pune and Ahmedabad count as metros, based on rules from April 2026. That list can change.

A worked example

Basic salary Rs 40,000 a month, HRA received Rs 16,000, rent paid Rs 15,000, living in a metro city.

  1. Actual HRA: Rs 16,000.
  2. Rent minus 10% of basic: 15,000 - 4,000 = Rs 11,000.
  3. 50% of basic: Rs 20,000.

The lowest is Rs 11,000, so that is the exempt HRA each month. The taxable HRA is 16,000 - 11,000 = Rs 5,000 a month, or Rs 60,000 a year.

Why it is the lowest of three

Each amount works as a limit. You cannot exempt more than you receive, more than you really spend over 10% of basic, or more than the salary-linked cap. If your rent is high, the cap on basic often decides the result. If your rent is low, the rent figure decides it.

Common mistakes

  • Using total salary instead of basic plus DA.
  • Forgetting that the exemption is for the old regime only.
  • Claiming HRA without rent receipts or the landlord’s details where they are needed. Keep your rent receipts.
  • Using the wrong city category.

Steps

  1. Open the HRA exemption calculator.
  2. Enter your monthly basic salary plus DA, the HRA you receive and the rent you pay.
  3. Turn the metro toggle on or off.
  4. Read the exempt HRA and the taxable HRA, and see which of the three amounts was lowest.

To decide whether the old regime suits you at all, compare both regimes with the old vs new tax regime calculator.

Try it nowHRA Exemption CalculatorCalculate how much of your house rent allowance is tax free.Open the tool