HRA Exemption Calculation 2025 — Formula, Examples & How to Claim
2. 50% of Basic (metro) / 40% of Basic (non-metro)
3. Actual Rent Paid − 10% of Basic Salary
HRA (House Rent Allowance) is one of the biggest tax-saving components for salaried employees in India. If you're living in a rented home, you can claim a significant exemption on the HRA portion of your salary.
Here's exactly how to calculate it and claim it.
What is HRA Exemption?
Under Section 10(13A) of the Income Tax Act, salaried employees living in rented accommodation can claim a portion of their HRA as tax-exempt.
Important: HRA exemption is only available under the Old Tax Regime. Under the New Tax Regime, HRA is fully taxable.
HRA Exemption Formula
The exempt amount = MINIMUM of these three:
- Actual HRA received from employer
- 50% of (Basic + DA) for metro cities / 40% for non-metro
- Actual rent paid − 10% of (Basic + DA)
Metro Cities for 50% Calculation
Mumbai, Delhi, Kolkata, and Chennai are classified as metro cities. All other cities get 40%.
Calculation Example 1 — Mumbai Employee
Example: Ramesh, Mumbai, ₹8 LPA CTC
| Component | Amount |
|---|---|
| Basic Salary (monthly) | ₹28,000 |
| HRA received (monthly) | ₹11,200 |
| Actual Rent Paid (monthly) | ₹15,000 |
| City | Mumbai (Metro) |
Calculation (monthly):
- Option 1: Actual HRA = ₹11,200
- Option 2: 50% of Basic = ₹14,000
- Option 3: Rent − 10% of Basic = ₹15,000 − ₹2,800 = ₹12,200
Minimum = ₹11,200 per month → ₹1,34,400 per year tax-exempt
Calculation Example 2 — Pune Employee
Example: Priya, Pune, ₹6 LPA
| Component | Amount |
|---|---|
| Basic Salary (monthly) | ₹20,000 |
| HRA received (monthly) | ₹8,000 |
| Actual Rent Paid (monthly) | ₹8,500 |
| City | Pune (Non-metro) |
Calculation (monthly):
- Option 1: Actual HRA = ₹8,000
- Option 2: 40% of Basic = ₹8,000
- Option 3: Rent − 10% of Basic = ₹8,500 − ₹2,000 = ₹6,500
Minimum = ₹6,500 per month → ₹78,000 per year tax-exempt
How to Claim HRA Exemption
Method 1: Via Employer (During the Year)
- Submit rent receipts to your employer's payroll team
- Receipts should include: date, amount, landlord name, address, signature
- Revenue stamp needed on receipts > ₹5,000
- If annual rent > ₹1 lakh, provide landlord's PAN
- Employer will reduce TDS accordingly
Method 2: Via ITR Filing (After Year End)
- Collect all rent receipts for the year
- Calculate exempt HRA as per formula above
- While filing ITR, declare HRA exemption under "Allowances exempt u/s 10"
- Excess TDS will become a refund
HRA Rules — Important Points
| Rule | Detail |
|---|---|
| Rent to parents allowed? | Yes — you can pay rent to parents and claim HRA. But parents must declare it as income. |
| Rent to spouse? | Not allowed by IT Department (treated as same household) |
| Own house + claiming HRA? | Not allowed (must be living in rented accommodation) |
| No HRA in salary but paying rent? | Section 80GG deduction available (max ₹5,000/month) |
| Rent > ₹1L annually? | Landlord's PAN is mandatory to provide to employer |
Section 80GG — If No HRA in Salary
If you don't receive HRA (or are self-employed), you can claim Section 80GG deduction:
- Minimum of:
- ₹5,000 per month
- 25% of total income
- Actual rent minus 10% of total income
File Form 10BA to claim this deduction.
Common HRA Mistakes
- Not collecting rent receipts (need them even for parents)
- Not collecting landlord PAN when rent > ₹1 lakh/year
- Claiming HRA while living in own house
- Forgetting to submit proof to employer — paying unnecessary TDS all year
- Choosing New Tax Regime and expecting HRA exemption — not possible
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