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The formula
Exempt HRA is the least of: (1) HRA actually received; (2) rent paid minus 10% of salary; (3) 50% of salary for the specified cities, 40% elsewhere. “Salary” means basic + dearness allowance (if it counts for retirement benefits) + commission based on fixed percentage of turnover.
The city list change
For FY 2025-26 returns, only Delhi, Mumbai, Kolkata and Chennai get 50%. From Tax Year 2026-27, the rules under the Income-tax Act, 2025 add Bengaluru, Hyderabad, Pune and Ahmedabad. Jind, Gurugram and other cities stay at 40%. Our HRA article explains the change.
Conditions
- You must actually pay rent and not live in your own house
- Rent to parents is allowed with a genuine agreement and their reporting the rent as income; rent to a spouse usually fails scrutiny
- Old regime only — the new regime makes all HRA taxable
Worked example
Example: Basic ₹50,000/month, HRA ₹20,000/month, rent ₹22,000/month in Jind. Yearly: (1) ₹2,40,000; (2) ₹2,64,000 − ₹60,000 = ₹2,04,000; (3) 40% × ₹6,00,000 = ₹2,40,000. Exempt HRA = ₹2,04,000.
Common mistakes
- Claiming HRA in the new regime
- Fake rent receipts — AIS and landlord PAN data make this risky
- Using 50% for a non-specified city
Frequently asked questions
Rent receipts and bank transfers usually suffice for small amounts, but an agreement is strong evidence; for rent above ₹1 lakh a year, the landlord's PAN is required.
Yes, if you live in a rented house in one city while the owned house is elsewhere or is under construction.
Last reviewed on 11 November 2026 by Vinay Jaglan, VJ & Associates. Law and portal screens change — verify before acting, or ask the office.
