# How Is HRA Exemption Calculated for FY 2026-27?

**Category:** Tax Guide | **Published:** 2026-04-22 | **Last reviewed:** 2026-06-29 | **Author:** Mr. Govind Dhawale

HRA exemption under Section 10(13A) is the lowest of three figures: actual HRA received, rent paid minus 10% of basic salary, and 50% of basic for the 8 metro cities (Delhi, Mumbai, Kolkata, Chennai, Bengaluru, Hyderabad, Pune, Ahmedabad) or 40% elsewhere. The 50% list expanded from 4 to 8 cities under Rule 279, in force from 1 April 2026. Available only under the Old Tax Regime.

> **Myth:** Every salaried employee gets HRA exemption automatically just because HRA shows up on the payslip.
>
> **Fact:** HRA is exempt only if you actually pay rent and submit proof, only under the Old Tax Regime, and only up to the lowest of three figures under [Section 10(13A)](https://www.incometaxindia.gov.in/Pages/acts/income-tax-act.aspx).

## What is HRA exemption?

> **Short answer:** House Rent Allowance is a salary component that is partly exempt from tax under [Section 10(13A) of the Income Tax Act, 1961](https://www.incometaxindia.gov.in/Pages/acts/income-tax-act.aspx), available only under the Old Tax Regime.

- HRA is paid by employers to help employees meet rental expenses, and a portion is exempt under [Section 10(13A)](https://www.incometaxindia.gov.in/Pages/acts/income-tax-act.aspx) only if you actually pay rent and submit proof.
- The 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 under [Section 10(13A)](https://www.incometaxindia.gov.in/Pages/acts/income-tax-act.aspx), with the 50% list expanded to these eight cities by the Income-tax Rules 2026 from 1 April 2026.
- 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).
- The New Tax Regime does not allow HRA exemption.

## What is the three-part formula for HRA exemption?

> **Short answer:** Your HRA exemption is the minimum of three figures under [Section 10(13A)](https://www.incometaxindia.gov.in/Pages/acts/income-tax-act.aspx): actual HRA received, rent paid minus 10% of basic salary, and the metro/non-metro cap on basic salary.

- (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.

**[Compute (a)/(b)/(c) automatically with the Tax Optimization Calculator](https://hrareceipt.in/tax-calculator)**

## Is there a calculator to skip the manual math?

> **Short answer:** Yes. The [Tax Optimization Calculator](/tax-calculator) applies the (a)/(b)/(c) HRA breakdown to the right metro / non-metro cap automatically under Rule 279 for FY 2026-27, entirely in your browser.

The calculator shows the side-by-side Old vs New regime comparison, 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](https://hrareceipt.in/tax-calculator)**

## Worked example: how does it apply to a Bengaluru employee (FY 2026-27)?

> **Short answer:** For a Bengaluru employee with Rs. 50,000 basic, Rs. 20,000 HRA, and Rs. 18,000 rent, the tax-free HRA is Rs. 13,000/month (Rs. 1,56,000/year) under [Section 10(13A)](https://www.incometaxindia.gov.in/Pages/acts/income-tax-act.aspx).

Bengaluru joined the 50% metro list from 1 April 2026 under the Income-tax Rules 2026, so the (c) cap under [Section 10(13A)](https://www.incometaxindia.gov.in/Pages/acts/income-tax-act.aspx) rose to 50%. 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.

| Component | Value |
| --- | --- |
| Basic salary | Rs. 50,000 / month |
| HRA from employer | Rs. 20,000 / month |
| Rent paid | Rs. 18,000 / month |
| City | Bengaluru (metro from FY 2026-27, 50%) |
| (a) Actual HRA received | Rs. 20,000 |
| (b) Rent paid − 10% of basic | Rs. 18,000 − Rs. 5,000 = Rs. 13,000 |
| (c) 50% of basic salary | Rs. 25,000  (was Rs. 20,000 under old 4-city rule) |
| Tax-free HRA (minimum of a, b, c) | Rs. 13,000 / month  ·  Rs. 1,56,000 / year |

*Bengaluru worked example, FY 2026-27. Source: Section 10(13A) read with the Income-tax Rules 2026 (8-city metro list).*

## Worked example: how does it apply to a Mumbai employee?

> **Short answer:** For a Mumbai employee with Rs. 60,000 basic, Rs. 30,000 HRA, and Rs. 25,000 rent, the tax-free HRA is Rs. 19,000/month (Rs. 2,28,000/year) under [Section 10(13A)](https://www.incometaxindia.gov.in/Pages/acts/income-tax-act.aspx).

City: Mumbai (metro, 50%). The minimum of the three figures is (b), Rs. 25,000 minus Rs. 6,000, which equals Rs. 19,000/month.

| Component | Value |
| --- | --- |
| Basic salary | Rs. 60,000 / month |
| HRA from employer | Rs. 30,000 / month |
| Rent paid | Rs. 25,000 / month |
| City | Mumbai (metro, 50%) |
| (a) Actual HRA received | Rs. 30,000 |
| (b) Rent paid − 10% of basic | Rs. 25,000 − Rs. 6,000 = Rs. 19,000 |
| (c) 50% of basic salary | Rs. 30,000 |
| Tax-free HRA (minimum of a, b, c) | Rs. 19,000 / month  ·  Rs. 2,28,000 / year |

*Mumbai worked example. Source: Section 10(13A), Income Tax Act 1961.*

## What changed for HRA computation in FY 2026-27?

> **Short answer:** The Central Board of Direct Taxes notified the [Income-tax Rules 2026](https://www.incometaxindia.gov.in/income-tax-forms-2026) on 20 March 2026, in force from 1 April 2026, with two changes affecting HRA computation.

- 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), so employees in those added cities should re-run their HRA math with the higher cap.
- 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; employees in Bengaluru / Hyderabad / Pune / Ahmedabad cannot back-claim the 50% cap on FY 2025-26 rent.

## What documents do you need to claim HRA?

> **Short answer:** Submit rent receipts to your employer via Form 12BB, and add the landlord's PAN once annual rent exceeds Rs. 1,00,000 under [Section 10(13A)](https://www.incometaxindia.gov.in/Pages/acts/income-tax-act.aspx).

- See our [Form 12BB guide](/answers/form-12bb-guide) for the complete process of submitting rent receipts to your employer.
- 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](/hra-receipt-without-pan).
- Keep your receipts organised: one per month is standard practice.

**[Generate compliant monthly rent receipts](https://hrareceipt.in/rent-receipt)**

## What key points should you remember about HRA?

> **Short answer:** HRA exemption is available only under the Old Tax Regime, cannot be claimed if you own a house in the same city you work in, and self-employed individuals must use [Section 80GG](https://www.incometaxindia.gov.in/Pages/acts/income-tax-act.aspx) instead.

- HRA exemption is available only under the Old Tax Regime; see [income tax slabs FY 2026-27](/answers/income-tax-slabs-fy-2026-27-new-regime) to compare regimes.
- You cannot claim HRA if you own a house in the same city you work in.
- Both spouses cannot claim HRA for the same rented property.
- Self-employed individuals cannot claim Section 10(13A) HRA but can claim [Section 80GG](https://www.incometaxindia.gov.in/Pages/acts/income-tax-act.aspx) up to Rs. 60,000/year.
- The receipt itself must contain [14 specific fields](/answers/rent-receipt-section-10-13a-checklist) to survive a Section 10(13A) audit.

## Primary sources

- [Section 10(13A), Income Tax Act 1961 — Income Tax Department](https://www.incometaxindia.gov.in/Pages/acts/income-tax-act.aspx) — HRA exemption statutory basis
- [Income-tax Rules 2026 — Income Tax Department](https://www.incometaxindia.gov.in/income-tax-forms-2026) — 8-city 50% HRA metro list, effective 1 April 2026 (FY 2026-27), replacing the Rule 2A 4-city basis
- [Rule 2A, Income Tax Rules 1962 — Income Tax Department](https://www.incometaxindia.gov.in/Pages/rules/income-tax-rules-1962.aspx) — Pre-FY-2026-27 4-city HRA computation formula (historical)
- [Section 80GG, Income Tax Act 1961 — Income Tax Department](https://www.incometaxindia.gov.in/Pages/acts/income-tax-act.aspx) — Self-employed rent deduction up to Rs. 60,000/year

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