If you are a salaried employee living in a rented house, HRA (House Rent Allowance) can help you save a good amount of tax every year. But most people are confused about how HRA calculation actually works — what counts, what doesn’t, and how much exemption they can claim.
Don’t worry, this guide breaks it down in the simplest way possible. No complicated tax language. No confusing formulas. Just clear explanations and examples.
💡 What Is HRA?
HRA (House Rent Allowance) is the amount your employer pays you to help cover your rent.
It is a part of your salary, and you can claim tax exemption on it if:
✔ You live in a rented house
✔ You actually pay rent
✔ You receive HRA in your salary slip
If you stay in your OWN house, you cannot claim HRA.
📘 How HRA Calculation Works (Super Simple Explanation)
Your HRA exemption is NOT the full HRA you receive.
The Income Tax Department uses a simple rule:
👉 You get the lowest amount from these 3 values:
1️⃣ Actual HRA received
2️⃣ Rent paid – 10% of Basic Salary
3️⃣ 50% of salary (metro) OR 40% (non-metro)
Whichever of these three is the smallest becomes your tax-free HRA amount.
Everything above that is taxable.
➗ HRA Calculation Formula (The 3-Step Rule)
Let’s rewrite the formula in plain English:
1. Check how much HRA your company gives you.
(You’ll see this on your payslip.)
2. Calculate rent paid minus 10% of your basic salary.
3. Check metro exemption limit:
- If you live in Delhi, Mumbai, Chennai, Kolkata → use 50% of basic salary
- Other cities → use 40% of basic salary
Now compare all 3.
The minimum is your HRA exemption.
🧮 Example: HRA Calculation (Easy Breakdown)
Let’s say:
- Basic Salary: ₹30,000/month
- HRA Received: ₹15,000/month
- Rent Paid: ₹12,000/month
- City: Bangalore (Non-metro → 40%)
Step 1: Actual HRA received
= ₹15,000
Step 2: Rent paid – 10% of Basic
10% of basic = 10% of 30,000 = ₹3,000
Rent paid – 10% = 12,000 – 3,000 = ₹9,000
Step 3: 40% of Basic Salary
40% of 30,000 = ₹12,000
Final HRA Exemption = Minimum of
15,000
9,000
12,000
👉 HRA Exemption = ₹9,000 per month
So yearly exemption = ₹9,000 × 12 = ₹1,08,000
Everything above this amount becomes taxable.
📍 Metro vs Non-Metro Cities for HRA
Metro Cities (50% Rule):
- Delhi
- Mumbai
- Chennai
- Kolkata
Non-Metro (40% Rule):
All other cities — including Bangalore, Hyderabad, Pune, Noida, Gurugram, Jaipur, etc.
🧾 Documents Required for HRA Exemption
To claim HRA without issues, keep these ready:
- Rent receipts (monthly/quarterly)
- Rent agreement (optional but useful)
- Landlord’s PAN if yearly rent > ₹1,00,000
- Landlord name + address
- Your rent payment proof (UPI, bank transfer, etc.)
🧍 Who Is Eligible for HRA?
You can claim HRA if:
✔ You are a salaried employee
✔ You receive HRA in salary
✔ You live in a rented house
✔ You actually pay rent
You cannot claim HRA if:
❌ You live in your own house
❌ You claim home loan + own house stay
❌ You are a freelancer or self-employed
(Self-employed people can claim rent under Section 80GG instead.)
📆 HRA Calculator for New vs Old Regime
- Old Tax Regime → HRA exemption allowed
- New Tax Regime → HRA not allowed
Employees who want HRA benefits must opt for the old regime.
🙋 FAQs
1. Can I claim HRA without rent receipts?
Yes, but if rent > ₹1 lakh/year, landlord PAN is compulsory.
2. Can I pay rent to parents and claim HRA?
Yes, legally allowed — but parents must show rent income.
3. Can I claim HRA and home loan interest together?
Yes, if your own house is in another city and you’re living on rent.
4. Are online rent payments valid for HRA?
Yes. UPI, bank transfer screenshots work as proof.
🏁 Final Thoughts
HRA calculation looks tough at first, but once you understand the 3-step rule, everything becomes super easy. The biggest advantage? You save tax legally by simply paying rent and maintaining rent proof.
If you want to make the process even easier, you can use an HRA Calculator where you enter:
- Basic salary
- HRA received
- Rent paid
- City
…and it instantly tells you your exemption.
🔗 Related Tax & Salary Tools You May Find Helpful
If you’re planning your taxes or trying to understand your salary structure better, these guides and calculators can help:
👉 Income Tax Calculator
Calculate your total tax liability based on old and new tax regimes.
👉 Salary Calculator
Break down your CTC into basic salary, HRA, PF, allowances, and in-hand salary.
👉 PF Calculator
Estimate your monthly PF contribution, employer contribution, and final PF maturity value.
👉 Gratuity Calculator
Find out your gratuity amount based on years of service and last drawn salary.
👉 DA (Dearness Allowance) Calculator
See how DA is calculated and how it affects your salary.