How HRA Exemption Is Calculated: Formula & Worked Example
Reviewed by CA Nikhil Gupta · Last reviewed 30 August 2026
HRA exemption comes down to the lowest of three amounts: actual HRA received, rent paid minus 10% of salary, and 50% of salary in a metro city (40% elsewhere).
HRA exemption under Section 10(13A) is the lowest of three amounts: actual HRA received, rent paid minus 10% of qualifying salary, and 50% of salary only for Mumbai, Kolkata, Delhi or Chennai—40% elsewhere. Whichever of the three is smallest is what's exempt; the rest is taxed as salary.
For the connected rule or filing step, see How Much HRA Can I Claim? Input-by-Input Guide.
Legal or Computational Framework
Governing rule
AY 2026–27 relates to FY 2025–26 under the Income-tax Act, 1961. Rule 2A defines qualifying salary and the three-limb test. For this period, only Mumbai, Kolkata, Delhi and Chennai qualify for the 50% metro rate — the eight-city list sometimes seen online applies from Tax Year 2026-27 onward, under Rule 279 of the Income-tax Rules, 2026 (CBDT Notification No. 22/2026), not to AY 2026-27. See HRA Exemption Is Not Limited to Metro Cities for the FY 2025-26 position, or the HRA Exemption Calculator to switch between both tax years.
Correct calculation method
Enter basic salary, qualifying DA and turnover-based commission for the rent-occupied period; enter actual HRA and rent; select the rented-house city; calculate all three limbs; take the least; compare old and default regimes.
Step-by-step workflow
- Enter basic salary, qualifying DA and turnover-based commission for the rent-occupied period.
- enter actual HRA and rent.
- select the rented-house city.
- calculate all three limbs.
- take the least.
- compare old and default regimes.
Worked example
Basic salary is ₹8,40,000, qualifying DA ₹60,000, HRA ₹3,60,000 and rent ₹3,00,000 in Bengaluru. Salary is ₹9,00,000; rent minus 10% salary is ₹2,10,000; 40% salary is ₹3,60,000. Exemption is ₹2,10,000.
The example is an illustration, not a substitute for the taxpayer's facts. A change in status, period, payment mode, document, city, asset, relationship or scheme can change the result.
Why generic pages get this wrong
Search pages often state a rate or limit without identifying the governing base. The calculation must distinguish gross receipt from taxable profit, tax from TDS, a deduction from an exemption, salary from business income, and an accounting entry from the tax treatment.
Decision matrix
| Decision point | Required treatment |
|---|---|
| Legal year | Use the Act, rules and notification effective for the income or transaction period |
| Taxpayer category | Confirm residence, age, entity, employee/business status and regime |
| Calculation base | Use the statutory definition rather than CTC, net bank receipt or accounting label |
| Ceiling or rate | Apply actual-amount, percentage, shared, lifetime and gross-income limits in sequence |
| Documentation | Link every input to an invoice, statement, contract, certificate or official record |
| Final output | Show tax, surcharge, cess, interest and TDS/TCS credits separately |
What Generic Pages Miss
- Using CTC instead of Rule 2A salary.
- Treating Bengaluru, Hyderabad, Pune or Ahmedabad as 50% cities.
- Ignoring period-wise job/city changes.
- Claiming HRA in the default regime.
- Using rent without evidence.
Practical Documentation Checklist
- Salary and HRA breakup
- Rent agreement and receipts
- Landlord PAN where required
- Bank rent trail
- City and occupancy proof
- Regime comparison
For the complete rules on this topic, see the core guide: HRA Exemption: Rules, Formula and Maximum Limit.
See the broader Income Tax & Salary knowledge hub for related rules and calculators on this topic.
Finin2min Summary
An HRA exemption calculator must use actual HRA, rent paid minus 10% of qualifying salary, and 50% of salary only for Mumbai, Kolkata, Delhi or Chennai—otherwise 40%. The least amount is exempt under the deduction-permitting regime.
Finin2min rule: establish eligibility, calculate transparently, and preserve an audit trail.
Frequently Asked Questions
Source and review trail
Use the current official instrument, portal or regulator publication before acting. This panel separates the category authority from page-specific references.
- Primary category
- Income Tax
- Official starting point
- www.incometax.gov.in
Page source links
- Income Tax Department — Salary and HRA guidance
- Income-tax Rules — Rule 2A
- Income Tax Department — Income from salary guide
- Income Tax Department — Income Tax Returns FAQs under the 2025 Act
- Salaried Individuals for AY 2026-27
- Income-tax Act, 1961
- Finin2min Editorial Policy
- Income Tax Department — Income Tax Returns FAQs (AY 2026-27 transition)