The exemption is the least of three tests — this shows all three
Calculate house rent allowance exemption: the least of actual HRA, rent paid over 10% of salary, and 50% or 40% of salary. Shown for metro and non-metro.
HRA exemption calculator
House rent allowance exemption is the least of three tests: actual HRA received, rent paid over 10% of salary, and 50% (metro) or 40% (non-metro) of salary.
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Test One
The actual house rent allowance received during the year.
Test Two
Rent actually paid, less 10% of salary. Where rent is below that, the exemption is nil.
Test Three
50% of salary in a metro city, 40% elsewhere. Salary means basic plus DA.
How the exemption works
House rent allowance is exempt to the extent of the least of three amounts: the actual HRA received, the rent paid in excess of 10% of salary, and 50% of salary for metro cities or 40% for everywhere else.
Salary here means basic plus dearness allowance — not gross, and not cost to company. Using gross inflates all three tests and produces an exemption that will not survive scrutiny.
Delhi, Mumbai, Kolkata and Chennai are metro cities for this purpose. Other cities, including several larger than Kolkata, are not.
What people get wrong
Rent below 10% of salary gives nothing. The second test is rent in excess of 10% of salary. Someone paying token rent to a relative frequently discovers the exemption is nil.
Proof is required. Rent receipts, and the landlord's PAN where annual rent exceeds the prescribed limit. Claims declared but never substantiated are disallowed, and the liability lands with the employer who allowed the deduction.
Paying rent to a family member is not automatically disqualified, but it attracts attention. A genuine arrangement with a real payment trail is defensible; a paper arrangement is not.
It is unavailable under the new tax regime. Since the new regime is the default, check which regime the employee is on before doing any of this work at all.
HRA exemption calculator FAQs
Can I claim HRA if I live with my parents?
Yes, if you genuinely pay rent to them and can show it. The rent is taxable income in their hands. A nominal arrangement with no actual payment does not survive examination.
Which cities count as metro?
Delhi, Mumbai, Kolkata and Chennai for this purpose. Other cities attract the 40% test, including several that are larger than some of the four.
Is HRA exempt under the new tax regime?
No. The exemption is not available under the new regime, which is now the default. Confirm the employee's regime before collecting rent receipts.
The employee lives in their own house. Can they still claim?
No. The exemption is against rent actually paid. An employee who owns and occupies the property has no rent outflow, and a claim without payment is the kind of thing that surfaces on assessment years later.
Can rent be paid to a parent?
It is possible where the arrangement is genuine — the parent owns the property, rent is actually paid and the parent reports it as income. What does not survive scrutiny is a paper arrangement with no money moving.
Do we need rent receipts for every month?
Documentation requirements step up above a declared threshold, including the landlord's tax identification. Collect at declaration time rather than in March, when the employee cannot produce it and the deduction has to be reversed.
The employee moved cities mid-year. Which rate applies?
Metro and non-metro treatment differs, and a mid-year move means the exemption is computed for each period separately. Applying one city's treatment to the whole year is wrong in both directions depending on which way they moved.
Stop calculating this one employee at a time
Klok computes this on every payroll run, for every employee, from your own attendance and salary data — with the working shown.