HRA Exemption Calculation FY 2026-27

Under Section 10(13A) of the Income Tax Act, 1961 read with Rule 279 of the Income-tax Rules 2026, the HRA exemption cap is 50% of basic salary for residents of Delhi, Mumbai, Kolkata, Chennai, Bengaluru, Hyderabad, Pune, and Ahmedabad — and 40% for all other Indian cities. Rule 279 took effect from 1 April 2026, expanding the metro list from 4 cities to 8; the previous Rule 2A list (4 cities only) still applies for FY 2025-26 returns. The landlord PAN becomes mandatory once annual rent crosses Rs. 1,00,000 (Rs. 8,334 per month). House Rent Allowance (HRA) is a salary component paid by employers to help employees meet rental expenses. A portion is exempt from tax under Section 10(13A) only if you actually pay rent and submit proof. The New Tax Regime does not allow HRA exemption.

Your HRA exemption is the minimum of:

(a) Actual HRA received from employer

(b) Actual rent paid minus 10% of basic salary

(c) 50% of basic salary if you live in one of the 8 metros (Delhi, Mumbai, Kolkata, Chennai, Bengaluru, Hyderabad, Pune, Ahmedabad); 40% for all other cities

The lowest of these three figures is your tax-free HRA for the year.

Plug your numbers into the Tax Optimization Calculator and see, in one screen, the side-by-side Old vs New regime comparison, the (a)/(b)/(c) HRA breakdown applied to the right metro / non-metro cap automatically (Rule 279, FY 2026-27), your unused-deduction headroom for 80C / 80D / 80CCD(1B) / 24(b), and the optimal regime call with the rupee savings. Section 89(1) salary-arrears relief is included if you tick the arrears box. The calculator runs entirely in your browser. No salary, rent, or PAN figure leaves your device. Open the Tax Optimization Calculator.

Basic salary: Rs. 50,000/month | HRA from employer: Rs. 20,000/month | Rent paid: Rs. 18,000/month | City: Bengaluru (metro from 1 April 2026 under Rule 279)

(a) Rs. 20,000

(b) Rs. 18,000 minus Rs. 5,000 (10% of basic) = Rs. 13,000

(c) 50% of Rs. 50,000 = Rs. 25,000 (was 40% / Rs. 20,000 for FY 2025-26)

Minimum = Rs. 13,000/month = Rs. 1,56,000/year is tax-free. The new 50% cap raises the (c) headroom from Rs. 20,000 to Rs. 25,000, but in this example (b) is the binding constraint, so the exempt amount is unchanged. The change matters for employees whose actual HRA and rent figures are higher — if (b) exceeds Rs. 20,000 but is below Rs. 25,000, the FY 2026-27 rule increases their tax-free amount.

Basic salary: Rs. 60,000/month | HRA from employer: Rs. 30,000/month | Rent paid: Rs. 25,000/month | City: Mumbai (metro)

(a) Rs. 30,000

(b) Rs. 25,000 minus Rs. 6,000 = Rs. 19,000

(c) 50% of Rs. 60,000 = Rs. 30,000

Minimum = Rs. 19,000/month = Rs. 2,28,000/year is tax-free.

The Central Board of Direct Taxes notified the Income-tax Rules 2026 on 20 March 2026, in force from 1 April 2026. Two changes affect HRA computation:

1. **8-city metro list under Rule 279**. Bengaluru, Hyderabad, Pune, and Ahmedabad now qualify for the 50% cap alongside the original four (Delhi, Mumbai, Kolkata, Chennai). Salaried employees living in those four added cities should re-run their HRA math with the higher cap.

2. **Landlord-relationship disclosure**. From FY 2026-27 onwards, the employee must disclose their relationship with the landlord (none / spouse / parent / sibling / other relative) in Form 12BB. Claims where the landlord is a close family member without an arm's-length rental arrangement face higher scrutiny.

For FY 2025-26 returns (filed by July 2026), the older Rule 2A list (4 cities only) applies. The transition is by financial year — employees in Bengaluru / Hyderabad / Pune / Ahmedabad cannot back-claim the 50% cap on FY 2025-26 rent.

To claim HRA exemption, submit rent receipts to your employer via Form 12BB. See our Form 12BB guide for the complete process. If your annual rent exceeds Rs. 1,00,000, the landlord's PAN is also mandatory. See our guide on claiming HRA when the landlord refuses to give PAN. Keep your receipts organised: one per month is standard practice. Generate compliant monthly receipts and verify the optimal regime + the exact HRA exemption with the Tax Optimization Calculator before you submit Form 12BB.

1. HRA exemption is available only under the Old Tax Regime. See income tax slabs FY 2026-27 to compare regimes.

2. You cannot claim HRA if you own a house in the same city you work in.

3. Both spouses cannot claim HRA for the same rented property.

4. Self-employed individuals cannot claim Section 10(13A) HRA but can claim Section 80GG up to Rs. 60,000/year.

5. The receipt itself must contain 14 specific fields to survive a Section 10(13A) audit.