How to Calculate HRA Exemption from Basic Salary in 2026

HRA exemption lets a salaried employee who pays rent exclude part of their House Rent Allowance from taxable salary under the old tax regime.

• The exemption is the lowest of HRA received, rent minus 10% of salary, and 50% or 40% of salary.
• Salary includes basic pay and dearness allowance covered by the applicable rules.
• From Tax Year 2026–27, eight cities qualify for the 50% limit, including Bengaluru, Hyderabad, Pune and Ahmedabad.
• HRA exemption is not available under the new tax regime.
• Eligible taxpayers without HRA can claim a rent deduction of up to Rs. 5,000 monthly under Section 134.
• You can claim HRA and eligible home loan deductions together under the old regime, subject to conditions.

Calculate all three amounts and compare the tax payable under both regimes. Keep your rent receipts, agreement and landlord's Permanent Account Number (PAN), where required, to support your claim.

HRA exemption is the portion of House Rent Allowance that an eligible salaried employee can exclude from taxable salary when paying rent for residential accommodation.

HRA is a salary component provided by your employer to help meet housing expenses. The amount received is taxable unless you meet the conditions for exemption under the old tax regime.

For income earned up to FY 2025–26, HRA exemption was governed by Section 10(13A) of the Income-tax Act, 1961, read with Rule 2A. From Tax Year 2026–27, the relevant exemption falls under Schedule III of the Income-tax Act, 2025, read with Rule 279 of the Income-tax Rules, 2026.

For example, if you receive Rs. 20,000 monthly as HRA and qualify for an exemption of Rs. 15,000, the remaining Rs. 5,000 is included in your taxable salary.

Source: Income Tax Department, Income-tax Rules, 2026, Rule 279.

You can claim HRA exemption if you are a salaried employee who receives HRA, pays rent for your home and files under the old tax regime.

Last updated: 20th October, 2026

An employee who lives in a self-owned house without paying rent cannot claim HRA exemption for that property.

Self-employed individuals and salaried employees who do not receive HRA cannot claim this exemption. However, they may qualify for a separate deduction for rent paid, subject to the applicable conditions.

Only the portion calculated under the HRA exemption formula is excluded from taxable salary. Any remaining HRA is taxable.

The exempt amount depends on your salary, rent paid, HRA received and the location of your rented accommodation.

For example, suppose you earn a basic salary of Rs. 60,000 per month, receive Rs. 20,000 as HRA, and pay Rs. 8,000 in rent.

Rent paid minus 10% of salary:

Rs. 8,000 − Rs. 6,000 = Rs. 2,000

Because Rs. 2,000 is lower than the HRA received and the applicable city-based salary limit, your monthly exemption is Rs. 2,000.

If your rent does not exceed 10% of the salary used for HRA calculation, the exemption is nil.

HRA exemption is calculated by comparing three amounts for the same period and selecting the lowest eligible amount.

HRA exemption = Lowest of the following three amounts:
 

1. Actual HRA received
2. Rent paid minus 10% of salary
3. 50% of salary in the eight specified cities, or 40% elsewhere

If the rent-minus-10% component is zero or negative, there is no HRA exemption for that period. The remaining HRA, if any, forms part of taxable salary.

Example: How much HRA is exempt in Delhi?

Consider a salaried employee in Delhi who earns Rs. 50,000 in basic pay and Rs. 10,000 in qualifying dearness allowance (DA) monthly.

The employee receives Rs. 12,000 as HRA and pays Rs. 15,000 in monthly rent.
 

The exemption is Rs. 9,000 monthly or Rs. 1,08,000 annually, assuming these amounts remain unchanged for 12 months. The remaining Rs. 3,000 monthly HRA is taxable.

For Tax Year 2026–27, the salary used in the HRA calculation includes basic pay and dearness allowance, if provided under the terms of employment. Other allowances and perquisites are excluded.

Rule 279 of the Income-tax Rules, 2026 governs this calculation.
 

For earlier years governed by Rule 2A of the Income-tax Rules, 1962, the salary definition also specifically addressed commission calculated as a fixed percentage of turnover.

Use the applicable year's rules instead of automatically carrying an earlier salary definition into Tax Year 2026–27.

For example, if your monthly gross salary is Rs. 1 lakh but your basic pay is Rs. 50,000, with no qualifying DA, a 50% city limit is Rs. 25,000. It is not calculated using your full gross salary.

Source: Income Tax Department, Rule 279, Income-tax Rules, 2026.

From Tax Year 2026–27, eight cities qualify for the 50% HRA salary limit: Delhi, Mumbai, Kolkata, Chennai, Bengaluru, Hyderabad, Pune and Ahmedabad.

All other locations fall under the 40% limit.

The Income-tax Rules, 2026, notified on 20th March, 2026, added Bengaluru, Hyderabad, Pune and Ahmedabad to the earlier four-city list.
 

Source: Income Tax Department, Rule 279, Income-tax Rules, 2026.

The classification follows the location of the residential accommodation for which the exemption is claimed.

For example, rented accommodation in Gurugram, Noida, Thane or Navi Mumbai falls under the 40% category rather than the eight-city list.

Remember that a higher city percentage increases your exemption only when that percentage is the lowest of the three applicable amounts.

Example: How much HRA can a Bengaluru employee claim?

Priya, a 29-year-old software engineer in Bengaluru, earns Rs. 1,20,000 monthly. Her basic pay is Rs. 60,000, with no DA. She receives Rs. 30,000 as HRA and pays Rs. 35,000 in monthly rent.

Up to Tax Year 2025–26: The lowest amount was Rs. 24,000 monthly. Priya's annual HRA exemption was Rs. 2,88,000.

From Tax Year 2026–27: The lowest amount becomes Rs. 29,000 monthly. Her annual exemption increases to Rs. 3,48,000.

The change increases Priya's eligible annual exemption by Rs. 60,000. This comparison assumes unchanged salary and rent for 12 months and that Priya chooses the old tax regime.

HRA exemption is unavailable under the new tax regime. Employees choosing it must include their HRA in taxable salary, subject to other applicable salary provisions. However, the new regime offers different slab rates and a Rs. 75,000 standard deduction for eligible salaried taxpayers.

The old regime allows qualifying HRA exemption and specified deductions, including eligible investments and home loan benefits.

Consider Priya's annual gross salary of Rs. 14.40 lakh in Tax Year 2026–27. She claims Rs. 1.50 lakh in qualifying investments under the old regime, in addition to HRA exemption.
 

The illustration assumes Priya is a resident individual below 60, has no other income, and meets the relevant deduction conditions. Surcharge and special-rate income are excluded.

Priya pays Rs. 6,396 less under the new regime, despite claiming HRA and investment deductions under the old regime.

This shows why you should compare final tax liability rather than choosing a regime based on one exemption. You can use the Bajaj Finance Income Tax Calculator to estimate tax under both regimes before making your decision.

Yes. You can claim HRA exemption on genuine rent paid to a parent who owns the accommodation, provided you receive HRA, pay rent and meet the old-regime conditions.

The arrangement should reflect a real landlord-tenant relationship. Keep a written rent agreement and consistent proof of payments. Bank transfers help establish that rent was actually paid.

If annual rent exceeds Rs. 1 lakh, provide the landlord's PAN for employer reporting. Your parent must also account for the rental income under the applicable income-tax provisions. Relevant deductions for income from house property may apply.

Example: Paying rent to a parent
 

Rahul, a salaried engineer in Lucknow, earns a monthly basic salary of Rs. 50,000 and receives Rs. 20,000 as HRA. He pays Rs. 18,000 monthly to his mother, who owns the house.
 

Rahul's annual exemption is Rs. 1,56,000, assuming he pays the same rent throughout the year. He must maintain genuine rental records. His mother's reported rental income should also reflect the actual arrangement.

Yes. You can claim HRA exemption and eligible home loan deductions together under the old regime if you satisfy the conditions for both benefits.

This can arise when you own a house in one city but rent accommodation in another for employment. It can also arise when your owned property is let out and you live in rented accommodation.
 

The exact deduction depends on the property's use, ownership, loan purpose and applicable statutory conditions. Under the Income-tax Act, 1961, the relevant provisions were Section 24(b) for house-property interest and Section 80C for qualifying principal repayments.

From Tax Year 2026–27, the corresponding provisions include Section 22 for eligible house-property interest and Section 123 for qualifying payments under the Income-tax Act, 2025.

A self-occupied property's interest deduction can be subject to the Rs. 2 lakh limit or a lower limit, depending on the qualifying conditions.

For let-out property, interest and house-property loss set-off follow different rules. The Rs. 2 lakh loss set-off ceiling should not be confused with a universal limit on the interest deduction itself.

Source: Income Tax Department, Income-tax Act, 2025.

Example: How do HRA and home loan interest work together?
 

Priya buys a flat in Mysuru for her parents while continuing to live in rented accommodation in Bengaluru.

She takes an illustrative Home Loan of Rs. 40 lakh at 8% per annum for 20 years.
 

The EMI uses monthly reducing-balance calculations and assumes a constant rate. The interest deduction assumes Priya owns the property and satisfies the applicable self-occupied property and borrowing conditions. Because she remains in rented accommodation for work, her HRA exemption may continue under the old regime.

Her revised tax comparison becomes:
 

Under these assumptions, the old regime becomes more beneficial. The Rs. 2 lakh deduction reduces taxable income, not tax payable by the same amount.

For a Bajaj Finance Home Loan, retain your interest certificate and repayment records when claiming eligible tax benefits. The final deduction depends on property use, the tax regime and the relevant statutory conditions.

Yes. Eligible taxpayers who do not receive HRA can claim a separate deduction for residential rent paid under the old tax regime.

For income earned up to FY 2025–26, this deduction fell under Section 80GG of the Income-tax Act, 1961 and from Tax Year 2026–27, the corresponding provision is Section 134 of the Income-tax Act, 2025.

The deduction is the lowest of three amounts.
 

The maximum fixed ceiling is Rs. 60,000 annually. The calculation uses adjusted total income as prescribed under the relevant provision, not necessarily gross salary.

You must also satisfy the conditions concerning HRA receipt and residential property ownership by yourself, your spouse or minor child. Restrictions can apply to property owned elsewhere if it is treated as self-occupied.

Which declaration is required?
 

For Tax Year 2026–27, eligible taxpayers claiming the Section 134 deduction must furnish Form No. 31 under the applicable rules. This replaces the earlier Form 10BA declaration used under the previous framework.

For example, someone who pays enough eligible rent to qualify for a calculated deduction above Rs. 60,000 can still claim only up to the prescribed fixed ceiling. Unlike HRA exemption, the rent deduction is not limited to salaried taxpayers receiving a particular allowance.

Source: Income Tax Department, Income-tax Rules, 2026, Form No. 31.

You should maintain documents showing the rent paid, the rented accommodation, your salary details and the landlord's identity where required.

The main documents are:
 

• Rent receipts: Include the rental period, amount, accommodation details and landlord information.
• Rent agreement: Records the rent, property address, tenancy period and parties.
• Landlord's PAN: Required for employer reporting when annual rent exceeds Rs. 1 lakh.
• Bank statements: Help establish actual rent payments.
• Salary slips: Show basic pay, qualifying DA and HRA received.
• Form 16: Helps reconcile the salary and exemption considered by your employer.

The employer may request supporting evidence before allowing an exemption through payroll. Even where an employer applies an administrative concession for low HRA amounts, the underlying exemption must still satisfy tax law.

Keep records for the full period claimed, particularly if you moved, changed rent or had more than one landlord.

You can claim eligible HRA exemption through your employer's salary-tax process or, subject to the applicable rules, while filing your income-tax return.

Follow these steps:
 

1. Choose the appropriate tax regime. Confirm your eligibility to choose the old regime and comply with the relevant selection and filing deadlines.
2. Calculate your exemption. Compare actual HRA, rent minus 10% of salary, and the applicable city-based limit.
3. Maintain rental records. Keep rent receipts and a written agreement.
4. Collect landlord details. Obtain PAN where annual rent exceeds Rs. 1 lakh.
5. Submit proof to your employer. Provide the records within the employer's declaration window.
6. Check Form 16. Compare the exemption reflected in payroll with your own calculation.
7. Claim eligible exemption in your return if required. If you missed your employer's deadline, report the correct amount under the old regime, subject to the applicable filing and regime-selection requirements.

If your employer deducted more tax than your final liability, you may qualify for a refund after the return is processed. A refund is not automatic merely because you submit an HRA claim.

Taxpayers with business or professional income must pay particular attention to the rules governing their choice of tax regime.

Incorrect salary figures, city classifications and rental records can reduce your eligible exemption or leave the claim unsupported.

The most common mistakes are:
 

• Using gross salary: Calculate the prescribed percentage using eligible salary components, not total gross pay.
• Applying the wrong city rate: The 50% limit applies only to the eight specified cities for Tax Year 2026–27.
• Using unsupported rent amounts: Keep evidence that you actually paid the rent claimed.
• Claiming rent for a self-owned residence: HRA exemption requires a qualifying rental arrangement.
• Claiming under the new regime: HRA exemption is unavailable under that regime.
• Ignoring a change in accommodation: Recalculate the exemption for different rental periods where relevant.

For example, if you move from Pune to Jaipur during the tax year, you cannot apply Pune's 50% limit to rent paid for accommodation in Jaipur.

Check each period using the relevant rent, salary and location.

First, calculate the three HRA components using your eligible salary, actual rent and applicable city limit. Then compare your final tax under both regimes.

Keep your rent records consistent with the details reported to your employer and the Income Tax Department. If you own a house elsewhere and are paying rent near your workplace, check whether you qualify for HRA and home loan deductions together.

Tax benefits should support your housing decision, not determine it alone. A Home Loan EMI must remain affordable after rent, household expenses and other commitments. You can compare home loan interest rates and review your home loan eligibility before taking on a housing loan.

If you are considering a residential property purchase, check eligibility for a Bajaj Finance Home Loan.