The three-condition rule is a minimum test.
The three-condition rule is a minimum test. Actual HRA limits employer-funded exemption, the rent limb limits claims where rent is modest, and the city limb limits claims where HRA and rent are high relative to salary.
This article uses the AY 2026–27 framework for income earned in FY 2025–26 under section 10(13A) of the Income-tax Act, 1961 read with Rule 2A. For this period, and in the current official departmental material reviewed on 1 August 2026, the 50% salary limb is restricted to Mumbai, Kolkata, Delhi and Chennai; all other locations use 40%. HRA exemption is ordinarily unavailable under the default new tax regime, so regime selection is a threshold eligibility question.
Case A: HRA ₹1,80,000, rent limb ₹2,20,000, city limb ₹3,00,000—actual HRA binds. Case B: HRA ₹3,00,000, rent limb ₹1,90,000, city limb ₹2,40,000—rent binds. Case C: HRA ₹3,20,000, rent limb ₹3,10,000, city limb ₹2,40,000—city limb binds. Each employee needs a different explanation even though the same formula applies.
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.
The three-condition rule is a minimum test. Actual HRA limits employer-funded exemption, the rent limb limits claims where rent is modest, and the city limb limits claims where HRA and rent are high relative to salary.
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