HRA exemption explained for tax year 2026-27: the three limits, the eight 50% cities and worked examples

The tax-free part of your house rent allowance (HRA) for tax year 2026-27 is the lowest of three amounts: the HRA you actually received, the rent you paid minus 10% of your salary, and 50% of your salary if the home is in one of eight named cities, or 40% anywhere else. “Salary” here means basic pay plus dearness allowance, not your CTC. The exemption exists only in the old tax regime. On a basic of ₹60,000, HRA of ₹30,000 and rent of ₹40,000 a month in Pune, ₹3,60,000 a year is exempt; the same pay and rent outside the eight cities gives ₹2,88,000. Every figure in this guide was worked out with our HRA calculator.

The rule: the least of three limits

The exemption sits in Schedule III of the Income-tax Act, 2025 (Table, Sl. No. 11). It covers an allowance your employer gives specifically to meet rent on a home you live in. Two conditions are in the Act itself: you must not own the home, and you must actually pay the rent.

The amount is set by rule 279 of the Income-tax Rules, 2026. It is the least of:

1. the HRA actually received for the relevant period;
2. the rent actually paid minus one-tenth of the salary due for that period; and
3. 50% or 40% of that salary, depending on the place.

Two definitions in the rule do a lot of work. The “relevant period” is the time you occupied the rented home during the tax year, so months when you were not renting drop out. “Salary” includes dearness allowance if your terms of employment provide for it, and leaves out every other allowance and perquisite.

Which cities get the 50% limit

Location of the rented home	Third limit
Mumbai, Kolkata, Delhi, Chennai, Hyderabad, Pune, Ahmedabad and Bengaluru	50% of salary
Any other place	40% of salary

Many older articles and calculators list only four metros. For 2026-27 the rule names eight, so if you rent in Hyderabad, Pune, Ahmedabad or Bengaluru your third limit is 50%.

Two points of care. First, the rule names the cities and stops there; it does not define their boundaries. If you live in a neighbouring town such as Gurugram, Noida, Thane or Navi Mumbai, ask your employer which percentage its payroll applies. Second, the table is headed “Location of residential accommodation”, while the sentence that introduces it speaks of the place where the employee is employed. Our calculator follows the table and asks for the city of the home. If you live in one city and work in another, check how your employer reads it.

Worked examples

All seven rows come from the HRA calculator. Amounts are for the year (seven months in the last row).

Monthly basic + DA, HRA, rent, and place	HRA received	Rent minus 10% of salary	50% or 40% of salary	Exempt HRA	Taxable HRA
₹40,000, ₹20,000, ₹18,000, Bengaluru	₹2,40,000	₹1,68,000	₹2,40,000	₹1,68,000	₹72,000
₹60,000, ₹30,000, ₹40,000, Pune	₹3,60,000	₹4,08,000	₹3,60,000	₹3,60,000	₹0
₹60,000, ₹30,000, ₹40,000, any other place	₹3,60,000	₹4,08,000	₹2,88,000	₹2,88,000	₹72,000
₹1,00,000, ₹50,000, ₹30,000, Hyderabad	₹6,00,000	₹2,40,000	₹6,00,000	₹2,40,000	₹3,60,000
₹50,000, ₹20,000, ₹22,000, Jaipur	₹2,40,000	₹2,04,000	₹2,40,000	₹2,04,000	₹36,000
₹30,000, ₹12,000, ₹2,500, any other place	₹1,44,000	₹0	₹1,44,000	₹0	₹1,44,000
₹50,000, ₹25,000, ₹28,000, Delhi, 7 months	₹1,75,000	₹1,61,000	₹1,75,000	₹1,61,000	₹14,000

What the rows show:

• Rent minus 10% of salary is the limit most people hit. In Bengaluru, a rent of ₹18,000 becomes ₹14,000 a month of exemption because 10% of the ₹40,000 basic comes off first. Each extra rupee of rent adds a rupee of exemption until another limit takes over.
• The city only matters when your HRA is a large share of basic pay. In rows two and three, the same pay and rent give ₹3,60,000 in Pune and ₹2,88,000 elsewhere. The 40% cap leaves ₹72,000 taxable.
• A high basic pay eats into a modest rent. In Hyderabad, ₹10,000 a month (10% of ₹1,00,000) comes off a ₹30,000 rent, so only ₹2,40,000 of the ₹6,00,000 HRA is exempt.
• Rent below 10% of salary earns nothing. ₹2,500 of rent against a ₹30,000 basic gives no exemption at all.

A quick test: your whole HRA is exempt when your rent is at least your HRA plus 10% of salary, and your HRA is no more than 50% (or 40%) of salary.

Only in the old regime, and only if the old regime wins

Section 202 of the Act says income under the new regime is computed without the Schedule III exemption for HRA. The new regime applies unless you opt out, and a salaried person with no business income can choose afresh each year. So the question is not just “how much HRA is exempt?” but “does that exemption make the old regime cheaper overall?”

The rows below come from our old vs new tax regime calculator. Each assumes a salaried person under 60 with ₹1,50,000 of Section 123 investments, ₹25,000 of health insurance and ₹2,400 of professional tax.

Gross salary	HRA exemption	Own NPS	New regime tax	Old regime tax	Lower tax
₹9.6 lakh	₹1,68,000	₹0	₹0	₹26,436.80	New by ₹26,436.80
₹15 lakh	₹2,88,000	₹0	₹97,500	₹1,13,796.80	New by ₹16,296.80
₹15 lakh	₹3,60,000	₹0	₹97,500	₹98,820.80	New by ₹1,320.80
₹15 lakh	₹3,60,000	₹50,000	₹97,500	₹88,420.80	Old by ₹9,079.20
₹24 lakh	₹2,40,000	₹50,000	₹2,92,500	₹3,92,371.20	New by ₹99,871.20

At ₹9.6 lakh the new regime’s tax is already nil, so the exemption is worth nothing. At ₹15 lakh the old regime needs ₹5,43,750 of deductions to break even. A ₹3,60,000 exemption brings the total to ₹5,37,400, just short, and one more ₹50,000 deduction tips it. At ₹24 lakh a ₹2,40,000 exemption is nowhere near enough. Our guide to the two regimes has the break-even at each salary level.

The CTC to in-hand calculator uses the new regime, so it treats all of your HRA as taxable pay.

Rent receipts and the landlord’s PAN

Your employer can only count the exemption when it deducts tax if you give it the details. Rule 205 says you do this in Form No. 124. For HRA the form asks for the landlord’s name and address, the rent paid and your relationship with the landlord, if any. The landlord’s Permanent Account Number must be given when the total rent for the tax year is more than ₹1,00,000, which means any rent above ₹8,333 a month for a full year. The form also has a line for the landlord’s Aadhaar number and lists the house rent agreement as an annexure.

Rule 279 exempts only rent “actually incurred”, so keep proof that you paid: receipts signed by the landlord and your bank or UPI records. Your payroll team will tell you what it wants to see. Our rent receipt generator prints a numbered set of monthly or quarterly receipts for the landlord to sign, and warns you when a year’s rent passes ₹1,00,000 and the PAN box is empty. Use it only for rent that was really paid.

One more duty catches high-rent tenants. Under section 393(1) of the Act, an individual tenant must deduct tax at 2% when the rent is more than ₹50,000 a month. (Individuals whose business or profession is above the Act’s turnover limits follow a different row of the same table.) The 2% is deducted once, for the last month of the tax year or of the tenancy. Ask a tax adviser how to deposit and report it.

Common mistakes

1. Using CTC or gross pay as “salary”. Only basic pay plus DA counts. A ₹24 lakh CTC with a ₹12 lakh basic has a 50% limit of ₹6 lakh, not ₹12 lakh.
2. Assuming the whole rent, or the whole HRA, is exempt. It is the least of three figures.
3. Relying on a four-metro list, or assuming a suburb counts as the city next door.
4. Declaring HRA while staying in the new regime. The exemption is then ignored.
5. Using twelve months when you rented for fewer, or when your pay or rent changed mid-year. Work out each stretch on its own.
6. Leaving out the landlord’s PAN when the year’s rent is above ₹1,00,000.
7. Claiming for a home you own. The Act rules that out. If you rent from a relative, the form asks you to state the relationship, so make sure the rent is genuinely paid and documented.
8. Expecting an exemption without HRA in your pay. A separate deduction under section 134 covers rent paid by people who get no HRA. It is the rent above 10% of total income, capped at ₹5,000 a month or 25% of total income, whichever is less, and it is not available in the new regime.

How to check this yourself

1. Open the HRA calculator. Enter Basic salary + DA (per month), HRA received (per month) and Rent paid (per month).
2. Choose the City of the rented home and set Months of rent in the year.
3. Read Exempt HRA and Taxable HRA. The table headed “The three limits (the smallest is exempt)” marks the binding one.

You can confirm the first row by hand. HRA received is 12 × ₹20,000 = ₹2,40,000. Rent minus 10% of salary is ₹2,16,000 − ₹48,000 = ₹1,68,000. Half of the ₹4,80,000 salary is ₹2,40,000. The lowest is ₹1,68,000.

Then put the exempt amount into the HRA exemption (old regime) box of the old vs new tax regime calculator, or into Other old-regime deductions and exemptions in the income tax calculator, to see your actual tax.

The calculator applies one set of monthly figures to the months you enter. It does not decide whether you own the home, whether your town counts as one of the eight cities or whether your proof is good enough.

Related tools

• HRA calculator: the three limits for your pay, rent and city.
• Old vs new tax regime calculator: whether the exemption makes the old regime cheaper.
• Income tax calculator: a quick check of tax under both regimes.
• Rent receipt generator: a year of receipts for the landlord to sign.
• CTC to in-hand calculator: monthly pay under the new regime.

Rules checked against the Income-tax Act 2025 and the Income-tax Rules 2026. This is general information, not tax advice; check your own position with a qualified adviser before you file.