Your tax-free HRA is the lowest of these three: the HRA on your payslip, 50% of basic (metro) or 40% (non-metro), or rent paid minus 10% of basic. The smallest number is what's exempt — the rest of your HRA is taxed. This works only on the old tax regime; the new regime gives no HRA exemption (under current rules — confirm the year's provisions).
"Salary" here means basic pay + dearness allowance (where it counts toward retirement benefits) + any commission fixed as a percentage of turnover. Not your gross CTC.
| # | The cap | Example* |
|---|---|---|
| 1 | Actual HRA received | Rs.3,00,000 |
| 2 | 50% of basic (metro) / 40% (non-metro) | Rs.3,00,000 |
| 3 | Actual rent paid minus 10% of basic | Rs.2,04,000 |
*Mumbai, basic Rs.6,00,000/yr, HRA Rs.3,00,000/yr, rent Rs.22,000/mo (Rs.2,64,000/yr).
Exemption = Rs.2,04,000. The remaining Rs.96,000 of HRA gets added to taxable income.
Metro = Delhi, Mumbai, Kolkata, Chennai only. Everywhere else — including Bengaluru, Pune, Hyderabad, Gurugram — is non-metro at 40%.
Cap 3 rises with the rent you pay; cap 2 is fixed. They meet when:
Rent = 60% of basic (metro), or 50% of basic (non-metro)
Pay more rent than that and the extra buys you no further exemption — you're capped by the 40/50% line. Pay less and you're leaving exemption on the table.
| Monthly rent (metro, basic Rs.50k/mo) | Annual exemption |
|---|---|
| Rs.10,000 | Rs.60,000 |
| Rs.20,000 | Rs.1,80,000 |
| Rs.30,000 (= 60% of basic) | Rs.3,00,000 (capped) |
| Rs.40,000 | Rs.3,00,000 (no gain) |
HRA exemption lowers your taxable salary, so once you hand HR your rent proofs your monthly TDS drops and the saving turns up in your take-home through the year — not as a year-end refund. In the app you can point that saving at a specific SIP: an emergency fund, a home down payment, retirement. Treat the exemption as found money and give it a job.
Q. Can I claim HRA if I live in my own house?
A. No. You must actually be paying rent for a home you neither own nor is deemed self-occupied.
Q. Is the HRA exemption available in the new tax regime?
A. No — it's an old-regime benefit only. Compare your total tax under both regimes before deciding (under current rules — confirm the year's limits or check with a CA).
Q. My employer doesn't give a separate HRA component. What are my options?
A. You can claim rent under Section 80GG instead, but it's capped at Rs.60,000 a year, well below what a structured HRA would allow.
Q. Do I need a rent agreement and receipts if my HR never asks for them?
A. Yes. The tax officer can ask for proof later. Keep the agreement, receipts, and bank records of rent actually paid.
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