11 April 2026 · 49Tax
HRA Exemption Calculation: How to Claim House Rent Allowance in AY 2026-27
Learn how HRA exemption is calculated under Section 10(13A), who can claim it, documents needed, and common mistakes to avoid for AY 2026-27.
HRA Exemption Calculation: How to Claim House Rent Allowance in AY 2026-27
House Rent Allowance (HRA) is one of the most significant tax-saving components in a salaried employee's pay package. If you live in a rented accommodation, a portion of the HRA you receive from your employer can be claimed as exempt from tax under Section 10(13A) of the Income Tax Act.
Yet many taxpayers either under-claim or over-claim HRA, leading to missed savings or scrutiny from the Income Tax Department. This guide walks you through exactly how the exemption is calculated, what documents you need, and the pitfalls to watch out for.
Who Can Claim HRA Exemption?
You can claim HRA exemption if all of the following are true:
- You are a salaried individual (self-employed individuals cannot claim HRA under Section 10(13A), though they can claim rent deduction under Section 80GG).
- You receive HRA as part of your salary.
- You actually pay rent for the accommodation you live in.
- The rented property is not owned by you.
If you live in your own house or don't pay rent, the entire HRA received is fully taxable.
The HRA Exemption Formula
The exempt HRA is the lowest of these three amounts:
| Component | Formula |
|---|---|
| Actual HRA received | HRA paid by your employer during the year |
| Rent paid minus 10% of salary | Total rent paid − 10% of basic salary |
| Metro / Non-metro limit | 50% of basic salary (if you live in Delhi, Mumbai, Chennai, or Kolkata) or 40% of basic salary (for all other cities) |
Salary for HRA purposes = Basic Pay + Dearness Allowance (if it forms part of retirement benefits). It does not include special allowances, bonuses, or commissions.
Worked Example: Metro City Employee
Rajesh works in Mumbai with the following annual figures:
- Basic salary: ₹8,40,000
- HRA received: ₹4,20,000
- Annual rent paid: ₹3,60,000
Step-by-step calculation:
| Component | Amount |
|---|---|
| Actual HRA received | ₹4,20,000 |
| Rent paid − 10% of salary | ₹3,60,000 − ₹84,000 = ₹2,76,000 |
| 50% of salary (Mumbai) | ₹4,20,000 |
Exempt HRA = ₹2,76,000 (the lowest of the three)
Taxable HRA = ₹4,20,000 − ₹2,76,000 = ₹1,44,000
Worked Example: Non-Metro City Employee
Priya works in Jaipur with these annual figures:
- Basic salary: ₹6,00,000
- HRA received: ₹2,40,000
- Annual rent paid: ₹1,80,000
| Component | Amount |
|---|---|
| Actual HRA received | ₹2,40,000 |
| Rent paid − 10% of salary | ₹1,80,000 − ₹60,000 = ₹1,20,000 |
| 40% of salary (non-metro) | ₹2,40,000 |
Exempt HRA = ₹1,20,000
Taxable HRA = ₹2,40,000 − ₹1,20,000 = ₹1,20,000
HRA Exemption Under Old Regime vs New Regime
This is critical for AY 2026-27: HRA exemption is only available under the old tax regime. If you opt for the new tax regime (which is the default), you cannot claim HRA exemption under Section 10(13A).
This makes HRA one of the key factors when deciding which regime to choose. If your rent is substantial, the old regime may save you significantly more tax — run the numbers before deciding. Our guide on old vs new tax regime covers this comparison in detail.
Month-by-Month Calculation: Why It Matters
If your salary, HRA, or rent changes during the year — for example, due to a mid-year pay revision or moving to a different city — the exemption must be calculated month by month, not as a lump annual figure.
For instance, if you lived in Mumbai for 8 months (rent ₹30,000/month) and then moved to Pune for 4 months (rent ₹20,000/month), you need to compute the three-way minimum separately for each period and add the results.
Your Form 16 from your employer typically reflects this correctly if you've submitted rent receipts on time. But if you're filing on your own with 49Tax, you can enter rent details for each period and the AI will compute the optimal exemption automatically.
Documents Required for HRA Claim
If annual rent is below ₹1,00,000
- Rent receipts (with landlord's name, address, amount, and period)
- Rental agreement is helpful but not mandatory
If annual rent is ₹1,00,000 or above
- Rent receipts
- Landlord's PAN is mandatory — your employer will require this for TDS purposes, and the IT Department may flag claims without it
- Rental agreement
If your landlord doesn't have a PAN
The landlord must provide a declaration in writing stating they don't have a PAN. Without either the PAN or this declaration, your employer may not allow the HRA exemption while computing TDS.
Can You Claim HRA If You Pay Rent to Family?
Yes, you can pay rent to your parents or other family members and claim HRA exemption — but the following must be genuine:
- You must actually transfer rent to the family member (bank transfers create a clear trail).
- The family member must own the property (or be the primary tenant).
- The family member must declare this rental income in their own ITR.
- You cannot pay rent to your spouse and claim HRA.
This is a legitimate tax-planning strategy. If your parent is in a lower tax bracket or has no taxable income, the net family tax outgo decreases. Just ensure the arrangement is genuine and documented.
Common Mistakes to Avoid
1. Claiming HRA without paying actual rent
The Income Tax Department cross-checks claims using AIS data and landlord PAN filings. Fake rent receipts can lead to penalties under Section 270A (50% to 200% of tax evaded).
2. Not accounting for employer-provided accommodation
If your employer provides free or subsidized housing, you cannot claim HRA exemption. The accommodation is instead treated as a perquisite and taxed differently.
3. Forgetting to compute month-by-month
As noted above, a lump-sum annual calculation when your salary or rent changed mid-year will give you an incorrect result — usually an under-claim.
4. Not submitting rent proofs to your employer on time
Many employers have a January or February deadline for rent proof submission. Missing this deadline means your employer will tax the full HRA while deducting TDS. You can still claim the exemption when filing your ITR, but you'll need to wait for a refund.
5. Claiming both HRA and home loan interest
You can claim both HRA exemption (if you rent a home in one city) and home loan interest deduction under Section 24(b) (if you own a home in another city). This is perfectly legal as long as you genuinely live in the rented accommodation for work reasons.
HRA vs Section 80GG: What If You Don't Receive HRA?
If you're salaried but your employer doesn't pay HRA, or if you're self-employed, you can claim rent deduction under Section 80GG instead. The limits are lower:
| Parameter | Section 10(13A) — HRA | Section 80GG |
|---|---|---|
| Eligibility | Salaried with HRA component | Salaried without HRA / Self-employed |
| Maximum exemption | No fixed cap (formula-based) | ₹5,000/month (₹60,000/year) |
| Metro distinction | Yes (50% vs 40%) | No |
| Regime | Old regime only | Old regime only |
Section 80GG requires filing Form 10BA as a declaration that you don't own any residential property at the location where you live and work.
How to Report HRA Exemption in Your ITR
In ITR-1 and ITR-2, the HRA exemption is reported under "Income from Salary" → "Allowances exempt under Section 10" → select "10(13A) — House Rent Allowance."
You'll need to enter:
- HRA received
- Rent paid
- Whether you lived in a metro city
The form auto-calculates the exempt amount. When filing through 49Tax, this is pre-filled from your Form 16 data — just verify the rent details match your actuals.
Key Takeaway
HRA exemption can easily save ₹30,000 to ₹80,000 in tax for salaried employees paying rent in Indian cities — but only under the old tax regime. Calculate the exemption month-by-month using the three-way minimum formula, keep your rent receipts and landlord PAN handy, and make sure the rent is genuinely paid and documented. If your rent is a significant expense, this single exemption could be the reason the old regime works out better for you.