What is HRA exemption?
Under Section 10(13A), the least of three amounts is exempt from tax: actual HRA received, rent paid minus 10% of basic salary, or 50% of basic salary for metro cities (Delhi, Mumbai, Chennai, Kolkata) / 40% for non-metro cities. HRA beyond this exemption is added to your taxable income.
Example: basic ₹50,000, HRA ₹20,000, rent ₹18,000 in a metro city. Exemption = min(₹20,000, ₹18,000 − ₹5,000, ₹25,000) = ₹13,000 per month. The remaining ₹7,000 is taxable.
HRA exemption formula
Exempt HRA = Minimum of:
1. Actual HRA received
2. Rent paid − 10% of basic salary
3. 50% of basic (metro) or 40% (non-metro)
The exemption only applies if you actually live in rented accommodation. You need a rent agreement and receipts. If annual rent exceeds ₹1,00,000, your landlord’s PAN is required. Paying rent to parents is allowed as long as the transaction is genuine and they declare it as income.