HRA Exemption in India 2026: How to Calculate It (Especially When You Switch Cities)

Last updated: May 2026. General information, not tax advice.

Quick answer: HRA (House Rent Allowance) exemption is available only under the old tax regime (not the new regime). The exempt amount is the least of three: (1) actual HRA received, (2) rent paid minus 10% of basic salary, (3) 50% of basic for metro cities / 40% for non-metro. If you switch jobs or cities mid-year, you compute HRA exemption separately for each period/employer based on that period’s salary, HRA, rent, and city — this is where most relocating employees make mistakes.

HRA is one of the largest tax exemptions for salaried renters, and the single most error-prone one for people who relocate for a new job. Here’s how it actually works.

What is HRA?

House Rent Allowance is a salary component employers pay to cover rented accommodation. A portion of it is exempt from income tax under Section 10(13A) — but only if you actually pay rent and only under the old tax regime. (The new regime does not allow HRA exemption.)

The HRA exemption formula

The exempt HRA is the least of these three amounts:

1. Actual HRA received from the employer
2. Rent paid − 10% of basic salary (basic + DA)
3. 50% of basic salary if you live in a metro (Delhi, Mumbai, Kolkata, Chennai), or 40% of basic if non-metro (Bangalore, Hyderabad, Pune, etc. are treated as non-metro for HRA’s 40% rule)

Whatever is smallest of the three is your exempt HRA. The rest of the HRA you received is taxable.

Note the metro definition quirk: for HRA, only Delhi, Mumbai, Kolkata, and Chennai are “metro” (50%). Bengaluru, Hyderabad, Pune, and others use the 40% figure despite being major tech hubs — a frequent source of miscalculation.

Worked example

Basic salary = ₹50,000/month (₹6,00,000/year). HRA received = ₹20,000/month (₹2,40,000/year). Rent paid = ₹25,000/month (₹3,00,000/year). City = Bengaluru (non-metro for HRA → 40%).

1. Actual HRA received = ₹2,40,000
2. Rent − 10% of basic = ₹3,00,000 − ₹60,000 = ₹2,40,000
3. 40% of basic = ₹2,40,000

Least of the three = ₹2,40,000 exempt. (In this example all three coincide; usually they differ and you take the smallest.)

The city-switch / job-switch problem

This is the part most relocating employees get wrong. If during one financial year you:

• Changed employers, and/or
• Moved cities (e.g., Bengaluru → Mumbai), and/or
• Had different basic salary / HRA / rent in different months

…then HRA exemption is not one single calculation for the year. It must be computed period-by-period, using the salary, HRA, rent, and city applicable to each period, then summed.

Example: Jan–Jun in Bengaluru (40%, old basic, old rent) and Jul–Mar in Mumbai (50%, new basic, new rent) → two separate HRA exemption computations, added together. Applying a single annual formula (or the wrong metro %) is the most common relocating-employee error and often surfaces during ITR scrutiny.

Also: each employer only computed HRA for their portion of the year. When you file your ITR combining both Form 16s, you must reconcile the HRA exemption across both periods yourself. This holds true even if you are serving notice period in India or switching to a new job.

Documentation you need

• Rent receipts (and a rent agreement; many employers who hire for top paying software engineering roles require both above a threshold)
• Landlord’s PAN if annual rent exceeds ₹1,00,000 — mandatory; without it the exemption can be denied
• Proof of rent payment (bank transfers strongly preferred over cash)

Common HRA situations

• Paying rent to parents: Permitted if it’s a genuine arrangement — there must be a real rent agreement, actual payments to the parent, and the parent should ideally report it as income. Sham arrangements are a known scrutiny target.
• No HRA component in salary: If you pay rent but get no HRA, you may instead claim a deduction under Section 80GG (subject to its own limits/conditions) — but not both.
• Own a house but rent in another city for work: You may be able to claim both HRA (for the rented place you live in) and home loan interest (for the owned house), if genuinely justified by your work location. This is legitimate but scrutiny-prone — keep clean documentation.
• New regime: No HRA exemption at all. If HRA is a large part of your package and you rent, factor this into the old-vs-new regime decision.

HRA and the regime choice

Because HRA exemption exists only in the old regime, a renter with a large HRA component and high rent has a meaningful old-regime advantage. This is one of the biggest single factors that can tilt the old-vs-new regime decision toward the old regime. Always include your HRA exemption when computing both regimes.

Frequently asked questions

How is HRA exemption calculated? Least of: actual HRA received; rent paid minus 10% of basic; 50% of basic (metro) or 40% (non-metro). The smallest of the three is exempt.

Is HRA exemption available in the new tax regime? No. HRA exemption is available only under the old tax regime.

Which cities are metro for HRA? Only Delhi, Mumbai, Kolkata, and Chennai (50%). Bengaluru, Hyderabad, Pune, etc. use 40% despite being major tech hubs.

How do I claim HRA if I changed cities mid-year? Compute HRA exemption separately for each period (with that period’s salary, HRA, rent, and city), then sum. Don’t apply one annual formula across different cities/employers.

Do I need my landlord’s PAN? Yes, if annual rent exceeds ₹1,00,000. Without it, the exemption can be disallowed.

Can I claim HRA paying rent to my parents? Yes, if it’s a genuine arrangement with a rent agreement, actual payments, and the parent reporting it. Sham setups are a scrutiny risk.

Can I claim HRA and home loan interest together? Possibly, if you own a house in one city but genuinely rent in another for work. It’s legitimate but documentation-sensitive.

What if I get no HRA but pay rent? You may claim Section 80GG instead (with its own limits) under the old regime — not alongside HRA.

Where to go from here

If you relocated for a new job this year, recompute HRA period-by-period before filing — using one annual formula or the wrong metro percentage is the most common (and most easily caught) relocating-employee mistake.

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General information only, not tax advice. HRA rules have nuances and change — consult a qualified tax professional for your situation.