Payroll & statutory · Updated October 2026
HRA exemption is the part of your House Rent Allowance that is not taxed, because you actually pay rent. It was granted under Section 10(13A) of the 1961 Act and, from tax year 2026-27, sits in Schedule III of the Income-tax Act, 2025 read with Rule 279 of the Income-tax Rules, 2026. It is one of the largest tax breaks available to a salaried person who rents. It applies only in the old tax regime.
Your exempt HRA is the lowest of these three amounts:
The 50% list was Delhi, Mumbai, Kolkata and Chennai up to FY 2025-26. From 1 April 2026 it also covers Bengaluru, Hyderabad, Pune and Ahmedabad, so employees renting in those four cities get the higher cap for tax year 2026-27 onwards.
Here “salary” means basic plus DA, plus commission if it is a fixed percentage of turnover. Everything is computed for the period the conditions hold, month by month if your rent or salary changed.
Basic Rs 50,000 a month, HRA Rs 20,000 a month, rent Rs 18,000 a month, living in Mumbai. Annual figures: HRA received Rs 2,40,000; rent Rs 2,16,000 minus 10% of Rs 6,00,000 salary is Rs 1,56,000; 50% of salary is Rs 3,00,000. The least is Rs 1,56,000, so that much HRA is exempt and the remaining Rs 84,000 is taxable.
Yes, if the arrangement is genuine: your parents own the property, you actually transfer the rent, and they declare it as income. Keep proof.
Yes, if the rent you pay in the year exceeds Rs 1,00,000. Below that, a declaration is usually enough. From tax year 2026-27 the declaration form that replaces Form 12BB also asks for your relationship with the landlord.
Possible, but only where the facts support it, for instance you rent in your work city and own a home elsewhere, or your own home is genuinely not occupiable by you. It invites scrutiny, so the reason must be real.
Work out your exact exemption with the HRA Exemption Calculator, declare it via Form 12BB, and see the tax impact in the Income Tax Calculator.