HRA Exemption 2026: How to Calculate House Rent Allowance

Are you a salaried employee paying rent every month and wondering how to reduce your tax burden? With the Income Tax Rules 2026 coming into effect from April 1, 2026, House Rent Allowance (HRA) exemption has become even more beneficial for lakhs of taxpayers across India. If you live in Bengaluru, Pune, Hyderabad, or Ahmedabad, there's great news—you can now claim 50% HRA exemption just like employees in Mumbai and Delhi!

In this comprehensive guide, you'll learn exactly how to calculate HRA exemption under Section 10(13A), which cities qualify for higher benefits, what documents you need, and how to maximize your tax savings for FY 2026-27. Whether you're paying rent to your landlord or even your parents, this guide covers every scenario with real examples in Indian rupees.

What is House Rent Allowance (HRA) Under Section 10(13A)?

House Rent Allowance (HRA) is a salary component provided by employers to help employees cover residential rental expenses and forms a significant part of the cost to company (CTC). Under Section 10(13A) of the Income Tax Act, a portion of HRA can be claimed as an exemption, effectively reducing taxable income.

The HRA exemption is only available under the Old Tax Regime; taxpayers opting for the New Tax Regime cannot claim HRA exemption, making it fully taxable. This is a critical decision point for salaried employees in FY 2026-27.

Eligibility Criteria for HRA Exemption

To claim HRA exemption under Section 10(13A), you must meet these conditions:

• You must be a salaried employee receiving HRA as part of your salary structure
• You must live in rented accommodation and actually pay rent
• You must opt for the old tax regime (not available in new regime)
• The rented property should not be owned by you, your spouse, or minor children
• You must maintain proper documentation including rent receipts and rental agreement

Major Changes in HRA Exemption Under Income Tax Rules 2026

Expansion of 50% Metro City List

The new rules have expanded the higher HRA tax exemption to more cities, with Hyderabad, Pune, Ahmedabad and Bengaluru added to the list previously limited to Mumbai, Kolkata, Delhi and Chennai. From FY 2026-27, the 50 percent limit is extended to eight cities total.

This is a game-changer for employees in India's IT hubs. An employee in Bengaluru earning ₹80,000 per month basic salary and paying ₹45,000 in rent can now claim an exemption of ₹40,000 per month under the 50% rule, compared to ₹32,000 under the previous 40% rule.

Mandatory Landlord Relationship Disclosure

The new income tax rules make it mandatory to disclose the relationship between the landlord and tenant for claiming HRA benefit. Salaried taxpayers claiming HRA must disclose their relationship with the landlord if annual rent exceeds ₹1 lakh, through Form 124 which replaces Form 12BB, requiring landlord's name, PAN, and relationship with taxpayer.

This change aims to prevent fraudulent HRA claims, especially when employees pay rent to family members.

HRA Exemption Calculation Formula: Step-by-Step Guide

The amount that can be claimed under Section 10(13A) as HRA exemption is the least of the following, where salary means Basic + Dearness Allowance + Commission as a percentage of turnover:

1. Actual HRA received from your employer during the financial year
2. Excess of rent paid over 10% of salary: (Actual annual rent paid) minus (10% of annual salary)
3. 50% of salary if you reside in metro cities (Mumbai, Delhi, Kolkata, Chennai, Bengaluru, Hyderabad, Pune, Ahmedabad) OR 40% of salary for all other cities

The lowest amount among these three becomes your HRA exemption. The remaining HRA is added to your taxable income.

Real Example: HRA Calculation for Metro City (FY 2026-27)

Let's take Mr. Sharma who works in Bengaluru (now a metro city under new rules):

• Basic Salary: ₹50,000 per month (₹6,00,000 annually)
• HRA Received: ₹25,000 per month (₹3,00,000 annually)
• Actual Rent Paid: ₹18,000 per month (₹2,16,000 annually)

Calculation:

1. Actual HRA received = ₹3,00,000
2. Rent paid minus 10% of salary = ₹2,16,000 - ₹60,000 = ₹1,56,000
3. 50% of salary (metro) = ₹6,00,000 × 50% = ₹3,00,000

HRA Exemption = ₹1,56,000 (the minimum of the three)

Taxable HRA = ₹3,00,000 - ₹1,56,000 = ₹1,44,000

You can calculate your exact exemption instantly using the HRA Calculator on TaxFetch.

Real Example: HRA Calculation for Non-Metro City

Ms. Verma works in Jaipur (non-metro city):

• Basic Salary: ₹40,000 per month (₹4,80,000 annually)
• HRA Received: ₹16,000 per month (₹1,92,000 annually)
• Actual Rent Paid: ₹12,000 per month (₹1,44,000 annually)

Calculation:

1. Actual HRA received = ₹1,92,000
2. Rent paid minus 10% of salary = ₹1,44,000 - ₹48,000 = ₹96,000
3. 40% of salary (non-metro) = ₹4,80,000 × 40% = ₹1,92,000

HRA Exemption = ₹96,000 (the minimum)

Taxable HRA = ₹1,92,000 - ₹96,000 = ₹96,000

Metro vs Non-Metro Cities: Complete 2026 Classification

Cities such as Hyderabad, Pune, Ahmedabad and Bengaluru are brought under the 50% category, reflecting their growth as major employment hubs and sharp rise in rental costs, expected to reduce taxable income and increase take-home pay for salaried taxpayers.

Documents Required to Claim HRA Exemption in FY 2026-27

The Income Tax Rules 2026 have stricter documentation requirements. Here's what you need:

Mandatory Documents

1. Rent Receipts: Monthly receipts signed by landlord with date, amount, property address, and landlord signature
2. Rental Agreement: Registered or notarized rent agreement copy
3. Landlord's PAN Card: If annual rent exceeds ₹1,00,000, you must share landlord's PAN with your employer (monthly rent of ₹8,333 or more)
4. Form 12BB / Form 124: The new Form 124 replaces Form 12BB and requires disclosure of landlord relationship for HRA claims
5. Bank Transfer Proof: Use digital payments for audit trail to prove actual rent payment

Special Cases: Paying Rent to Parents or Family

Yes, you can claim HRA while living with parents. Requirements:

• Create a valid rental agreement at market rate
• Pay rent via bank transfer (never cash)
• Collect monthly rent receipts
• Your parents must declare this rent as 'Income from House Property' in their ITR
• Disclose the relationship in Form 124 as per new rules

HRA in Old Tax Regime vs New Tax Regime: Key Differences

The new regime remains beneficial for most employees, especially those with salary up to ₹12.75 lakh, while the old regime helps only if you can claim large deductions. Use the Income Tax Calculator to compare both regimes based on your salary and rent.

How to Claim HRA Exemption: Practical Steps for FY 2026-27

Option 1: Claim HRA Through Employer (Reduces Monthly TDS)

1. Submit rent receipts to your employer at the start of financial year
2. Provide landlord PAN if rent exceeds ₹1 lakh annually
3. Fill and submit Form 12BB or new Form 124 with landlord relationship disclosure
4. Your employer will calculate exempt HRA and deduct lower TDS from salary each month

Option 2: Claim HRA While Filing ITR (Get Refund)

1. If you didn't submit documents to employer, you can claim while filing Income Tax Return
2. Enter HRA details in 'Income from Salary' section under 'Allowances exempt under Section 10'
3. Upload supporting documents if required by the ITR portal
4. The exempt HRA will reduce your taxable income and you may get refund

For hassle-free ITR filing with automatic HRA calculation, check your Form 26AS / TDS Fetch Tool to verify TDS already deducted.

Common Mistakes to Avoid When Claiming HRA Exemption

• Not disclosing landlord relationship: New rules mandate relationship disclosure; hiding family landlord details can lead to penalty
• Claiming HRA under new tax regime: HRA exemption is only for old regime; don't expect it if you opted for new regime
• Missing landlord PAN: If rent exceeds ₹1 lakh annually, landlord PAN is mandatory from FY 2026-27
• Cash rent payments: Always pay via bank transfer for valid audit trail
• Not maintaining receipts: Tax department can ask for 6-year-old rent receipts during scrutiny
• Claiming full HRA as exempt: Remember, only the calculated minimum amount is exempt, not full HRA

HRA Exemption and Home Loan: Can You Claim Both?

Yes, if you can justify that you have lived in different accommodation and paid rent for the same, you can claim HRA and home loan deduction together.

Example scenario:

• You own a house in your hometown (Pune) and have a home loan
• You work in Bengaluru and pay rent there
• You can claim: HRA exemption for Bengaluru rent under Section 10(13A) + Home loan interest deduction up to ₹2 lakh under Section 24(b) + Principal repayment up to ₹1.5 lakh under Section 80C

This dual benefit can save significant tax, but both are available only under the old tax regime.

Section 80GG: Alternative for Those Not Receiving HRA

Section 80GG of the Income Tax Act allows taxpayers without HRA component but paying rent to claim a deduction, limited to ₹60,000 per year under the old tax regime only; not available under new regime.

Section 80GG Calculation: Least of:

1. Actual rent paid minus 10% of total income
2. ₹5,000 per month (₹60,000 per year)
3. 25% of total income

This is beneficial for self-employed professionals, freelancers, and salaried employees whose company doesn't provide HRA component.

FAQ: House Rent Allowance Exemption 2026

Which cities are eligible for 50% HRA exemption under Income Tax Rules 2026?

Under Rule 279 of the Income Tax Rules 2026, eight cities are now eligible for 50% HRA exemption: Mumbai, Delhi, Kolkata, Chennai, Bengaluru, Hyderabad, Pune, and Ahmedabad. Previously, only the first four were classified as metro cities. This expansion from April 1, 2026, benefits salaried employees in these tech hubs where rental costs have risen significantly. All other cities remain eligible for 40% HRA exemption under the old tax regime.

How is HRA exemption calculated under Section 10(13A) for FY 2026-27?

HRA exemption is calculated as the minimum of three amounts: (1) Actual HRA received from employer, (2) Actual rent paid minus 10% of salary (Basic + DA), or (3) 50% of salary for metro cities (Mumbai, Delhi, Kolkata, Chennai, Bengaluru, Hyderabad, Pune, Ahmedabad) or 40% for non-metro cities. The lowest amount qualifies as your tax-exempt HRA. This formula is governed by Section 10(13A) read with Rule 279 of Income Tax Rules 2026.

Is HRA exemption available under the new tax regime in FY 2026-27?

No, HRA exemption is not available under the new tax regime. The Income Tax Rules 2026 clearly state that HRA benefits under Section 10(13A) are only available to taxpayers who opt for the old tax regime. Under the new regime, the entire HRA received becomes fully taxable as part of your salary income. If you pay significant rent, calculate both regimes using TaxFetch's Income Tax Calculator to determine which option saves more tax.

What documents are required to claim HRA exemption in 2026?

To claim HRA exemption for FY 2026-27, you need: (1) Rent receipts signed by landlord for each month, (2) Rental agreement copy, (3) Landlord's PAN if annual rent exceeds ₹1,00,000, (4) Form 12BB or new Form 124 declaration to employer, and (5) Landlord relationship disclosure as per Income Tax Rules 2026. If paying rent to parents or relatives, a valid agreement and bank transfer proof are mandatory. Submit these to your employer for monthly TDS relief or claim while filing ITR.

Can I claim both HRA exemption and home loan interest deduction together?

Yes, you can claim both HRA exemption under Section 10(13A) and home loan interest deduction under Section 24(b) simultaneously, provided you can prove you live in a different city from where you own property. For example, if you own a house in your hometown but work and pay rent in Bengaluru, you can claim HRA for Bengaluru rent and deduct up to ₹2 lakh home loan interest for the owned property. Both benefits are available only under the old tax regime from FY 2026-27 onwards.

Conclusion: Maximize Your HRA Tax Savings in FY 2026-27

House Rent Allowance exemption under Section 10(13A) remains one of the most powerful tax-saving tools for salaried employees in India, especially with the Income Tax Rules 2026 expanding 50% benefits to Bengaluru, Pune, Hyderabad, and Ahmedabad. By understanding the calculation formula, maintaining proper documentation, and choosing the right tax regime, you can save lakhs of rupees annually.

Remember: HRA exemption is only available under the old tax regime, so calculate both options carefully. If you pay high rent in metro cities, the old regime with HRA benefits often results in lower tax liability compared to the new regime's simplified structure.

Ready to calculate your exact HRA exemption and overall tax liability for FY 2026-27? Explore all TaxFetch Tools including our advanced HRA Calculator, Income Tax Calculator, and TDS Fetch Tool to plan your taxes smartly and maximize your savings. Start calculating now and keep more of your hard-earned money!