HRA Exemption 2026: Calculation, 8 Metro Cities and Regime Choice
Last updated: 13 October 2026
Quick answer: HRA exemption calculation takes the lowest of three amounts: the HRA you received, rent paid minus 10% of salary, and 50% of salary in a metro (40% elsewhere). From tax year 2026-27 the metro list grows to eight cities, adding Bengaluru, Pune, Hyderabad and Ahmedabad. The exemption exists only in the old regime, so it pays only if your total deductions are large enough.
Last updated: 13 October 2026 Quick answer: HRA exemption calculation takes the lowest of three amounts: the HRA you received, rent paid minus 10% of salary, and 50% of salary in a metro (40% elsewhere). From tax year 2026-27 the metro list grows to eight cities, adding Bengaluru, Pune, Hyderabad and Ahmedabad. The exemption exists only in the old regime, so it pays only if your total deductions are large enough. Key takeaways Formula: exempt HRA = least of actual HRA, rent minus 10% of salary, and 50%/40% of salary. New metros: Pune, Bengaluru, Hyderabad and Ahmedabad move to 50% from 1 April 2026; FY 2025-26 returns still use four metros. Paperwork: rent agreement and receipts; landlord PAN if rent exceeds ₹1 lakh a year; declare via Form 124 (old Form 12BB). Regime test: at ₹21 lakh salary you need about ₹7.4 lakh of total deductions before the old regime beats the new one. No HRA? A separate rent deduction of up to ₹5,000 a month exists for those without HRA, again only in the old regime. A software engineer in Hinjewadi paying ₹55,000 a month in rent has, until now, been treated by the tax law as living in a "non-metro". From tax year 2026-27 that changes. The Income-tax Rules, 2026, notified on 20 March 2026 under the new Income-tax Act, 2025, extend the higher 50% HRA limit to Pune, Bengaluru, Hyderabad and Ahmedabad. That sounds like a big tax break. For many people it is not, because the HRA exemption only works inside the old tax regime, and the new regime is now the default with much lower slab rates. This guide shows the exact HRA exemption calculation, what changed, the documents you need, and a simple test to decide whether claiming HRA is worth it for you. What is HRA exemption and how is it calculated? House Rent Allowance (HRA) is a salary component employers pay to help cover rent. The HRA exemption is the part of that allowance that is not taxed, provided you actually live in rented accommodation and pay rent. Under the 1961 Act it sat in section 10(13A) and Rule 2A; under the Income-tax Act, 2025 it moves to the schedule of exempt income (Schedule III, read with section 11) and the Income-tax Rules, 2026. The exempt amount is the lowest of: Actual HRA received from your employer. Rent paid minus 10% of salary. 50% of salary if you live in a metro city, or 40% of salary elsewhere. "Salary" here is not your CTC. It means basic pay, plus dearness allowance if it counts for retirement benefits, plus any commission fixed as a percentage of turnover. Bonuses, special allowances and other perquisites are left out. All three limbs are worked out only for the months you actually lived in rented housing during the year. HRA exemption calculation steps showing the least of three limits A worked HRA exemption calculation Take Ananya, a Pune-based manager with basic salary of ₹70,000 a month (₹8.4 lakh a year), HRA of ₹35,000 a month (₹4.2 lakh) and rent of ₹40,000 a month (₹4.8 lakh) for the full year. Limb FY 2025-26 (Pune at 40%) Tax year 2026-27 (Pune at 50%) Actual HRA received ₹4,20,000 ₹4,20,000 Rent minus 10% of salary (₹4,80,000 − ₹84,000) ₹3,96,000 ₹3,96,000 40% / 50% of salary ₹3,36,000 ₹4,20,000 Exempt HRA (lowest) ₹3,36,000 ₹3,96,000 Taxable HRA ₹84,000 ₹24,000 The metro change raises Ananya's exemption by ₹60,000. At a 30% old-regime slab plus 4% cess, that is about ₹18,700 of tax saved, but only if she files under the old regime. Notice too that the binding limb moved. In Pune she is now limited by her rent, not by the city percentage, so paying a higher rent would raise her exemption further. Which cities count as metro for HRA in 2026? For decades only four cities got the 50% limit: Delhi, Mumbai, Kolkata and Chennai. The Income-tax Rules, 2026 widen this to eight by adding Bengaluru, Pune, Hyderabad and Ahmedabad. For Pune's large salaried workforce in Hinjewadi, Kharadi, Magarpatta and Baner, this is the most significant HRA change in years. Timing matters. The new list applies from tax year 2026-27 (income earned from 1 April 2026). Any return filed in 2026 for FY 2025-26 is governed entirely by the 1961 Act, as the Income Tax Department's transition FAQs confirm, so Pune is still a 40% city for that return. You will see the benefit in your employer's TDS this year and in the return you file in mid-2027. HRA metro cities list before and after the Income-tax Rules 2026 What documents do you need to claim HRA? Your employer can allow the exemption while deducting TDS only if you tell them you are using the old regime and submit your claim with evidence. Under the 2026 Rules this declaration is Form 124 (earlier Form 12BB), given to the employer once a year, on paper or electronically; it is not uploaded to the tax portal. Rent agreement: the Income Tax Department's Form 124 FAQ lists a copy of the rent agreement as the supporting document for HRA. Rent receipts or bank transfer records: pay rent by bank transfer or UPI so there is a clear trail. Landlord's PAN: required if annual rent exceeds ₹1,00,000. A landlord without a PAN can give a signed declaration to that effect. Landlord relationship: ClearTax notes that the new Rules require you to disclose your relationship with the landlord. If you miss your employer's deadline, you can still claim the exemption while filing your return, as long as you choose the old regime there. You will get the excess TDS back as a refund, which is slower but not lost. Can you pay rent to your parents and claim HRA? Yes, if the arrangement is genuine. The house should belong to your parent, you should actually pay rent (ideally by bank transfer), and the parent must show it as rental income in their own return. If your parent is a retiree in a low bracket, the family may pay less tax overall. Paying rent to your spouse, however, is widely treated as not eligible. Read our guide on gifting money to family and clubbing rules (/insights/gifting-money-family-clubbing-rules) before structuring anything within the family, and see how rental income is taxed (/insights/rental-income-tax-30-percent-deduction-india) on the parent's side. Can you claim HRA and a home loan together? Yes, when the facts support both. A common case is owning a flat in Nagpur or Nashik while renting in Pune for work. You can claim the HRA exemption for rent in Pune and the home loan interest and principal deductions on the other house, under the old regime. It is harder to defend if you own a house in the same city and still rent, so keep a clear reason such as distance or a let-out property. Our guide to home loan tax benefits under both regimes (/insights/home-loan-tax-benefits-old-new-regime) explains the interest and principal limits. Is HRA available in the new tax regime? No. Section 202 of the Income-tax Act, 2025, which sets out the new regime, denies exemptions for allowances such as HRA, along with most Chapter VIII deductions. The new regime is the default; you must opt out each year (salaried individuals can switch every year when filing) to use HRA. The new regime's slabs for tax year 2026-27 are nil up to ₹4 lakh, then 5%, 10%, 15%, 20% and 25% in ₹4 lakh steps, and 30% above ₹24 lakh, with a ₹75,000 standard deduction and a rebate that makes taxable income up to ₹12 lakh effectively tax-free. The old regime keeps its 5%/20%/30% slabs from ₹2.5 lakh, a ₹50,000 standard deduction and all the classic deductions. When is claiming HRA worth it? The break-even test Add up every old-regime deduction you genuinely have: exempt HRA, the ₹1.5 lakh section 123 limit (old section 80C, including EPF), health insurance premiums, NPS under the old 80CCD(1B), home loan interest on a self-occupied house, and so on. Then compare the total with the break-even figure for your salary below. If you are above it, the old regime saves tax; below it, the new regime wins even after HRA. Deductions including HRA needed for old regime to beat new regime at different salaries Above roughly ₹24 lakh of gross salary, the break-even settles at about ₹8 lakh of deductions. That is a high bar. A Mumbai or Pune earner with large rent and a full set of other deductions can clear it; many others cannot. Worked example: the Pune metro change can flip the answer Rohan earns ₹30 lakh in Pune: basic ₹12 lakh, HRA ₹6 lakh, rent ₹55,000 a month (₹6.6 lakh). His other old-regime deductions total ₹2.75 lakh: ₹1.5 lakh under section 123, ₹75,000 of health insurance for himself and senior-citizen parents, and ₹50,000 in NPS. With Pune at 40% (the old rule), exempt HRA is ₹4.8 lakh and old-regime tax is about ₹4.90 lakh. The new regime costs ₹4.76 lakh, so the new regime wins. With Pune at 50% (from tax year 2026-27), exempt HRA rises to ₹5.4 lakh and old-regime tax drops to about ₹4.71 lakh. Now the old regime wins, narrowly, by about ₹4,700. Bar chart of tax in Pune under old regime with 40% and 50% HRA limits versus new regime The lesson is not "switch to the old regime". It is that the metro change matters most for high-rent, high-deduction households in the four new cities, and even there the margin can be thin. Run the numbers each year, especially when your rent, salary structure or EPF changes. Our old vs new regime guide (/insights/tax-planning-guide-india) and tax planning for salaried families (/insights/tax-planning-salaried-families-india) walk through the full comparison. What if your salary has no HRA component? Self-employed people and employees without HRA can claim a separate deduction for rent paid (section 80GG under the old Act) in the old regime. It is the least of ₹5,000 a month, 25% of total income, and rent paid minus 10% of total income, so the ceiling is ₹60,000 a year. You must file a declaration of rent paid before claiming it: Form 10BA under the old Act, renumbered Form 31 in the 2026 Rules. Neither you, your spouse nor your minor child should own a house in the city where you live. Common HRA mistakes that trigger notices Inflated or fake rent receipts. The department matches landlord PANs against their returns and AIS data. Rent with no matching income on the landlord's side is a red flag. Cash rent with no trail. Pay by bank transfer and keep the agreement current. Claiming HRA in the new regime. The return will disallow it and you may get a tax demand. Using CTC instead of basic + DA. This overstates the 50%/40% limb. Applying the new metro list to the FY 2025-26 return. Pune, Bengaluru, Hyderabad and Ahmedabad are 50% cities only from tax year 2026-27. If you are unsure which return form to use or have already filed incorrectly, see which ITR form to file (/insights/which-itr-form-to-file) ; the belated or revised return windows for FY 2025-26 are still open. For a wider view of what changed in April 2026, read the Income-tax Act 2025 explained for individuals (/insights/income-tax-act-2025-changes-individuals) . Related reading Tax Planning FY 2026-27: Old vs New Regime (/insights/tax-planning-guide-india) Home Loan Tax Benefits Under Old and New Regimes (/insights/home-loan-tax-benefits-old-new-regime) Rent vs Buy in Pune: The Numbers (/insights/rent-vs-buy-pune) Section 80D: Health Insurance Deductions (/insights/section-80d-health-insurance-deduction) ELSS in 2026: Still Worth It Under the New Regime? (/insights/elss-funds-new-tax-regime-2026) Frequently Asked Questions Is Pune a metro city for HRA exemption? Yes, from tax year 2026-27 (income from 1 April 2026). The Income-tax Rules, 2026 add Pune, Bengaluru, Hyderabad and Ahmedabad to Delhi, Mumbai, Kolkata and Chennai for the 50% limit. For the FY 2025-26 return filed in 2026, Pune is still a non-metro at 40%, because that return follows the Income-tax Act, 1961 and its rules. How do I calculate my HRA exemption quickly? Work out three numbers for the months you rented: HRA received; rent paid minus 10% of basic plus DA; and 50% (metro) or 40% (other city) of basic plus DA. The lowest is exempt and the rest is taxable. Most payroll portals and the Money n Wealth calculators (/tools) do this automatically once you enter basic, HRA and rent. Can I claim HRA without rent receipts? Employers usually accept small amounts without receipts, but you should keep evidence regardless. The tax department can ask for the rent agreement, receipts and bank records during processing or scrutiny. If annual rent exceeds ₹1 lakh you also need the landlord's PAN or a declaration from the landlord that they have none. Can I claim HRA under the new tax regime? No. The new regime under section 202 of the Income-tax Act, 2025 does not allow the HRA exemption or most other deductions. You must opt for the old regime to claim it. Salaried taxpayers without business income can choose the regime afresh every year when filing their return. I forgot to submit rent proof to my employer. Can I still claim HRA? Yes. You can claim the exemption in your income tax return under the old regime and get the excess TDS refunded. Keep your rent agreement, receipts and the landlord's PAN ready, because the claim will not appear in your Form 16 (Form 130 from tax year 2026-27) and may be checked. Can both spouses claim HRA for the same house? Each can claim HRA for the rent they actually pay. If you split the rent, each claims on their own share, with matching bank payments and receipts. Do not both claim the full rent. Ideally, the rent agreement names both of you as tenants. Is HRA exemption available for the full year if I moved mid-year? The calculation is done for the period you actually lived in rented housing. If you lived in your own home for some months, those months are excluded. If you moved between cities, compute each period separately using that city's percentage. Sources: ClearTax, HRA exemption guide (https://cleartax.in/s/hra-house-rent-allowance) ; ClearTax, Income-tax Rules 2026 changes (https://cleartax.in/s/draft-income-tax-rules) ; Income Tax Department, Form 124 FAQs (https://www.incometaxindia.gov.in/documents/d/guest/form-124-faqs) ; CBDT FAQs on transition to the Income-tax Act, 2025 (https://www.incometaxindia.gov.in/documents/81799/11848482/Updated-FQAs-on-Interplay%26Transitions.pdf/e10ad2b6-9495-de90-58d3-20606d8954ae?t=1775128640970) ; Income-tax Act, 2025, section 202 (https://www.incometaxindia.gov.in/w/section-202-76) ; Income-tax Rules, 2026 (Notification 22/2026) (https://www.incometaxindia.gov.in/documents/20117/13428530/notification-22-2026+1.pdf/4fb75298-2d6d-e61d-bf57-1a7195245db3?t=1773992643469) ; e-Filing portal, deductions incl. 80GG (https://www.incometax.gov.in/iec/foportal/help/individual/return-applicable-2) . Worked examples are Money n Wealth calculations. Old regime or new: which saves you more this year? The answer depends on your rent, salary structure and family deductions, and it can change every year. Talk to Money n Wealth (/contact) for a free portfolio review and tax-regime check. This article is for general educational purposes only and does not constitute financial advice. Figures and examples are illustrative. Please consult a qualified financial adviser for guidance specific to your situation. Money n Wealth (Predics Fintech Services Pvt Ltd) is an AMFI-registered Mutual Fund Distributor (ARN-121995) and APMI-registered PMS Distributor (APRN07444); it is not a SEBI-registered investment adviser and may earn distribution commission on investments made through it.
Frequently Asked Questions
Is Pune a metro city for HRA exemption?
Yes, from tax year 2026-27 (income from 1 April 2026). The Income-tax Rules, 2026 add Pune, Bengaluru, Hyderabad and Ahmedabad to Delhi, Mumbai, Kolkata and Chennai for the 50% limit. For the FY 2025-26 return filed in 2026, Pune is still a non-metro at 40%, because that return follows the Income-tax Act, 1961 and its rules.
How do I calculate my HRA exemption quickly?
Work out three numbers for the months you rented: HRA received; rent paid minus 10% of basic plus DA; and 50% (metro) or 40% (other city) of basic plus DA. The lowest is exempt and the rest is taxable. Most payroll portals and the Money n Wealth calculators do this automatically once you enter basic, HRA and rent.
Can I claim HRA without rent receipts?
Employers usually accept small amounts without receipts, but you should keep evidence regardless. The tax department can ask for the rent agreement, receipts and bank records during processing or scrutiny. If annual rent exceeds ₹1 lakh you also need the landlord's PAN or a declaration from the landlord that they have none.
Can I claim HRA under the new tax regime?
No. The new regime under section 202 of the Income-tax Act, 2025 does not allow the HRA exemption or most other deductions. You must opt for the old regime to claim it. Salaried taxpayers without business income can choose the regime afresh every year when filing their return.
I forgot to submit rent proof to my employer. Can I still claim HRA?
Yes. You can claim the exemption in your income tax return under the old regime and get the excess TDS refunded. Keep your rent agreement, receipts and the landlord's PAN ready, because the claim will not appear in your Form 16 (Form 130 from tax year 2026-27) and may be checked.
Can both spouses claim HRA for the same house?
Each can claim HRA for the rent they actually pay. If you split the rent, each claims on their own share, with matching bank payments and receipts. Do not both claim the full rent. Ideally, the rent agreement names both of you as tenants.
Is HRA exemption available for the full year if I moved mid-year?
The calculation is done for the period you actually lived in rented housing. If you lived in your own home for some months, those months are excluded. If you moved between cities, compute each period separately using that city's percentage.
Old regime or new: which saves you more this year?
The answer depends on your rent, salary structure and family deductions, and it can change every year. Talk to Money n Wealth for a free portfolio review and tax-regime check.
