What is HRA and How Do I Claim It? A Simple Guide for Salaried Indians
A colleague of mine worked in Bengaluru for four straight years, paid ₹22,000 a month in rent, and never once claimed HRA exemption.
She knew it existed. She’d seen it on her salary slip. She just assumed her HR team had automatically taken care of it.
They hadn’t. Nobody had.
Four years. Roughly ₹4–5 lakh in tax savings, gone — not because of complexity, but because of a wrong assumption and no follow-through.
HRA exemption requires no investment, no new account, and no financial expertise. The only thing it requires is documentation you already have — and knowing what to submit, to whom, and when.
This article walks through everything: the formula, the 2026 rule changes that matter right now, and every situation salaried people actually Google — paying rent to parents, claiming both HRA and a home loan, and what happens when your employer doesn’t give you HRA at all.
What this article covers
First things first: HRA exemption only works under the old tax regime
Before anything else, this is the one fact that can make everything else in this article irrelevant.
HRA exemption under Section 10(13A) of the Income Tax Act is available only under the old tax regime. The new tax regime — which has been the default for salaried employees since FY 2023-24 — does not allow HRA exemption at all. If you’re on the new regime, your entire HRA is fully taxable as part of your salary. There’s nothing to calculate, nothing to submit.
This is why choosing your tax regime matters so much. If you’re paying ₹15,000 a month or more in rent in a metro city, the HRA exemption alone can sometimes make the old regime more beneficial — even accounting for its higher slab rates. It’s worth running the numbers before assuming the new regime is better.
To check which regime you’re on: look at your salary slip. If your TDS calculation shows HRA as exempt income, you’re on the old regime. If HRA appears entirely in your gross taxable salary, you’re on the new one — and you cannot claim the exemption unless you formally switch back.
The old vs new tax regime comparison is worth sitting with for 10 minutes if you haven’t done it recently — especially now that HRA in Bengaluru, Pune, and Hyderabad has a more generous ceiling.
How HRA exemption is calculated — the three-limit formula
The exempt portion of HRA is always the lowest of three amounts. This is fixed in law under Section 10(13A) and Rule 2A — there’s no room for interpretation.
Calculate all three. The smallest is your HRA exemption.
Limit 1 — Actual HRA received from your employer during the year
Limit 2 — Actual rent paid minus 10% of your salary (Basic + DA)
Limit 3 — 50% of your salary if you live in a metro city, 40% if non-metro
One clarification that trips people up: ‘salary’ here is not your gross salary and not your CTC. For HRA, salary means Basic Salary plus Dearness Allowance (only the portion forming part of retirement benefits) plus commission if it’s a fixed percentage of turnover. Most private sector employees don’t receive DA. So for the majority of us: salary for HRA = Basic Salary only. Special allowance, performance bonus, LTA — these don’t count.
This is exactly why your salary slip has so many separate components — each one is taxed differently, and knowing which number to use in which formula is the difference between a correct claim and an incorrect one.
The metro city change that came into effect in April 2026
For decades, only four cities were classified as metro for HRA purposes: Delhi, Mumbai, Kolkata, and Chennai. People in these cities got 50% of basic as the ceiling in Limit 3. Everyone else — including the tech capitals of Bengaluru, Hyderabad, Pune, and Ahmedabad — was stuck at 40%, despite paying rents that often exceeded those in the old metros.
The Income Tax Rules 2026, notified by CBDT on March 20, 2026 and effective from April 1, 2026, changed this. Under Rule 279, four cities have been added to the metro list for HRA purposes:
- Bengaluru
- Hyderabad
- Pune
- Ahmedabad
All eight cities now qualify for the 50% HRA exemption rate. On a basic salary of ₹50,000/month, the difference between 40% and 50% is ₹5,000 a month — or ₹60,000 more in the maximum exemption ceiling per year.
However — and this matters if you’re filing your FY 2025-26 ITR right now: the 8-city rule applies from FY 2026-27 (April 1, 2026) onwards. If you are filing your tax return for FY 2025-26 (due July 31, 2026), only the old four cities — Delhi, Mumbai, Kolkata, Chennai — are metro. Bengaluru, Hyderabad, Pune, and Ahmedabad are non-metro for that filing. Do not apply 50% retrospectively.
If your employer has already updated your April 2026 salary slip to reflect the 50% calculation for Bengaluru or Pune — that’s correct for FY 2026-27. But it does not apply to the ITR you file this July.
There’s a more detailed breakdown of this change, with city-wise impact figures, in the dedicated article: HRA Exemption Now Covers Pune, Bengaluru, Hyderabad — What This Means for Your Tax.
A real example: two people, same salary, two cities
Let’s put the formula in action. Both Karan and Sneha earn the same salary and pay the same rent — but live in different cities.
Basic salary: ₹40,000/month (₹4,80,000/year) · HRA received: ₹18,000/month (₹2,16,000/year) · Rent paid: ₹20,000/month (₹2,40,000/year)
| Karan (Mumbai — metro, FY 2025-26) | Sneha (Pune — non-metro, FY 2025-26 ITR) | Sneha (Pune — metro from FY 2026-27) | |
| Limit 1: Actual HRA received | ₹2,16,000 | ₹2,16,000 | ₹2,16,000 |
| Limit 2: Rent − 10% of Basic | ₹2,40,000 − ₹48,000 = ₹1,92,000 | ₹2,40,000 − ₹48,000 = ₹1,92,000 | ₹2,40,000 − ₹48,000 = ₹1,92,000 |
| Limit 3: % of Basic | 50% × ₹4,80,000 = ₹2,40,000 | 40% × ₹4,80,000 = ₹1,92,000 | 50% × ₹4,80,000 = ₹2,40,000 |
| HRA Exemption (lowest of 3) | ₹1,92,000 ✓ | ₹1,92,000 ✓ | ₹1,92,000 ✓ |
| Taxable HRA | ₹24,000 | ₹24,000 | ₹24,000 |
In this example, both land at the same exemption — because Limit 2 is the binding constraint for all three scenarios. The metro/non-metro distinction only changes the outcome when Limit 3 is the smallest of the three.
Here’s the situation where it actually matters: if Sneha’s rent went up to ₹25,000 and her HRA received was ₹22,000/month, Limit 2 would become ₹2,52,000 and Limit 1 would be ₹2,64,000. Limit 3 is now the binding number.
Under the old non-metro 40% rule for FY 2025-26: exemption = ₹1,92,000. Under the new 50% metro rule from FY 2026-27: exemption = ₹2,40,000. That’s ₹48,000 more in exemption — which at a 30% slab means ₹14,400 saved in tax per year. From one rule change, for doing nothing differently.
Documents you need to claim HRA
Your employer will ask for proof — usually at the start of the year for investment declarations, and again in January–February. Here’s what to have ready.
Rent receipts: Monthly receipts showing date, amount paid, your name, landlord’s name, and property address. Most employers accept a printed receipt signed by the landlord. Keep one for every month — April to March.
Rent agreement: A signed agreement between you and your landlord. Not always mandatory with employers, but strongly advisable — required if there’s any scrutiny later.
Landlord PAN: Mandatory if your annual rent exceeds ₹1,00,000 — that’s monthly rent above ₹8,333. The Income Tax department cross-matches PAN data. A missing landlord PAN can get your entire HRA exemption disallowed during assessment. If the landlord refuses, you can still claim HRA in your ITR directly — but it creates unnecessary risk.
Bank transfer proof: Not legally required but strongly advisable. Rent paid in cash with no trail is a scrutiny red flag. Pay via NEFT, UPI, or cheque and keep records.
Form 124 — new from April 2026: This is a change most salaried employees don’t know about yet. The Income Tax Rules 2026 replaced Form 12BB with Form 124 from April 1, 2026. The new form requires you to disclose the relationship between yourself and your landlord when submitting your investment declaration. If your HR team is still using the old Form 12BB for FY 2026-27 investment declarations, they need to update their process — and you should flag it.
Can you pay rent to your parents and claim HRA?
Yes — and it’s completely legal, widely done, and well-recognised by the Income Tax department. But the conditions aren’t optional.
You must actually be living in your parents’ house, not your own property. The rent must be genuine and at a reasonable market rate. You must pay by bank transfer — not cash. You must have a proper rent agreement. And critically: your parents must declare this rental income in their own ITR. The Income Tax department looks at both sides of the transaction. If you claim HRA exemption and your parents show no corresponding rental income, that discrepancy can be flagged.
The Income Tax Rules 2026 also now require disclosure of the landlord-tenant relationship in Form 124. If you’re renting from a parent, that gets formally declared — which is fine and expected, as long as everything else is in order.
The benefit is real: if your parents are in a lower tax bracket — say they’re retired with income below the taxable threshold — the rent income in their hands attracts little or no tax, while you save at your 20% or 30% slab. The family saves money, completely legally.
Can you pay rent to your spouse and claim HRA?
No. The Income Tax department does not recognise rent paid to a spouse as a genuine arm’s-length transaction for HRA exemption purposes. If challenged in assessment, such claims are typically disallowed.
Rent to parents — accepted, with conditions. Rent to spouse — not accepted. There’s no workaround here.
If your spouse has a property and you’re living in it, that’s a different question — one covered in detail in the article on gifting money to your spouse and tax implications.
Can you claim HRA and a home loan together?
This surprises people every year, so let’s be direct: yes, in certain situations, you can claim both.
The scenario where it works cleanly: you own a house in one city, but you actually live and work in a rented flat in a different city. In this case, you can claim HRA exemption on the rent you pay and home loan interest deduction under Section 24(b) on your owned property. Both claims are legitimate and independent — the rent covers where you actually live, the home loan interest covers a property you own but don’t occupy.
Even within the same city, both can be allowable. For example, if your owned property is occupied by your family and you rent somewhere closer to your workplace, there are situations where both deductions hold. The key requirement is that the circumstances are real and documentable. A scenario like: own a flat in Powai but rent in Andheri because it is 40 minutes closer to the office 2014 that is a scenario that has been accepted. Owning a house but choosing to rent even though it is nearby 2014 that is harder to defend.
This is one area where a CA’s input for your specific situation is worth the consultation fee before you file.
What if your employer doesn’t include HRA in your salary?
Some companies — particularly smaller firms or those paying a consolidated gross salary — don’t include HRA as a named component in the salary structure. If your salary slip has no HRA line, you cannot claim Section 10(13A) exemption.
In this case, Section 80GG applies — but only under the old tax regime. It allows a deduction on rent paid, subject to the lowest of: ₹5,000/month (₹60,000/year), 25% of adjusted total income, or actual rent paid minus 10% of total income.
Before filing, you need to submit Form 10BA — a declaration that you are paying rent, do not own residential property in your work city, and have not received HRA from any employer during the year. This form must be filed online before you submit your ITR.
The ₹60,000 annual ceiling makes 80GG significantly less valuable than HRA exemption in metro cities. If you’re paying ₹20,000 a month in rent in Bengaluru, your 80GG deduction is capped at ₹60,000 — while a colleague with HRA in their salary could exempt two or three times that amount. But it’s better than nothing, and it’s the correct route if your salary structure doesn’t include HRA.
The most common HRA mistakes salaried people make
- Using gross salary instead of basic salary in the HRA formula. The number that matters is basic — not your total monthly credit or CTC.
- Not submitting rent proof to HR on time. Miss the January–February deadline and you end up with higher TDS all year, waiting for a refund during ITR filing. Submit early.
- Applying 50% for Bengaluru/Pune/Hyderabad on the FY 2025-26 ITR. The 50% rate is valid only from FY 2026-27. Use 40% for those cities in the current ITR filing.
- Paying rent in cash. No bank trail means scrutiny risk. Always use UPI, NEFT, or cheque.
- Not collecting landlord PAN when monthly rent crosses ₹8,333. The Income Tax department cross-matches these. A missing PAN can cost you the entire exemption.
- Not getting parents to declare rental income. If you claim the exemption and they don’t file it as income in their ITR, both of you are exposed to a discrepancy.
- Assuming HR handles it automatically. HR applies only what you submit. If you don’t submit the right documents, they don’t deduct — and you pay more TDS than you should.
- Still using old Form 12BB for FY 2026-27 declarations. It’s been replaced by Form 124 from April 1, 2026. Check with your HR team.
How to claim HRA this year — step by step
- Check your salary slip: confirm HRA is a named component and you are on the old tax regime. Both must be true.
- Calculate your exemption using all three limits for the full year — take the lowest number. That is your exempt HRA.
- Collect rent receipts for every month (April 2025 to March 2026 for FY 2025-26 ITR filing).
- Get landlord PAN if your monthly rent is above ₹8,333.
- Submit receipts, PAN, and rent agreement to HR via the updated Form 124 before their declaration deadline — typically January–February.
- If you missed the HR deadline: you can still claim the HRA exemption directly in your ITR under Section 10(13A). The employer route and the ITR route are separate — missing one doesn’t mean losing the benefit.
- If paying rent to parents: ensure all transfers are via bank, that they file the rental income in their ITR, and that the relationship is disclosed in Form 124.
- If your employer doesn’t provide HRA: file Form 10BA and claim under Section 80GG in your ITR — but confirm you’re on the old regime first.
Your Form 16 — the document your employer issues every June — will show exactly how much HRA exemption has already been applied. Cross-check it against your own calculation before filing. If the numbers don’t match, you can correct it in the ITR.
While you’re at it, this is also a good time to check your take-home salary calculation and ensure the HRA component feeds correctly into your overall numbers.
And if HRA is your main reason for staying on the old tax regime, make sure you’re also claiming every other deduction you’re entitled to — Section 80C, Section 80D, and LTA if applicable. The old regime only makes sense if you’re using it fully.
My colleague who lost four years of exemptions now sets a reminder every October: submit rent receipts to HR. That 20-minute task saves her between ₹70,000 and ₹1 lakh in tax every year.
The money was always there. She just didn’t know she needed to ask for it.
Related reading on The Salary Investor:
- Old Tax Regime vs New Tax Regime: Which One Should You Pick in FY 2025-26?
- How to Read Your Salary Slip — Every Component Explained in Plain English
- What Is Form 16 and How Do You Use It to File Your ITR?
- HRA Exemption Now Covers Pune, Bengaluru, Hyderabad — What Changed in 2026
- New Income Tax Act 2025: What Changed for Salaried Indians from April 2026?
Disclaimer:This article is for general educational purposes and does not constitute personalised tax or financial advice. Tax rules, rates, and limits are as verified in June 2026. HRA exemption availability depends on your tax regime choice, salary structure, and documentation. Please consult a SEBI-registered financial advisor or a Chartered Accountant for advice specific to your situation. Returns are not guaranteed.
Sources: HRA Exemption rules Section 10(13A) — ClearTax, April 2026 · HRA Exemption Rules April 2026 — 8 Metro Cities under Rule 279 — TaxFetch India, March 2026 · HRA Exemption Calculation India 2026: New Rules + Guide — EZHRM, May 2026 · Section 80GG Deduction for Rent Paid — ClearTax, 2026 · HRA Exemption 2026 Complete Guide FY 2026-27 — JM Financial Services, March 2026
He figured out most of what he knows about personal finance not from courses or advisors, but from years of reading, making mistakes, and fixing them. The Salary Investor is his attempt to save other salaried Indians the same time and money.
He is not a CA or a SEBI-registered advisor. He writes as a fellow salaried person who has been in the trenches — navigating EPF, ITR, 80C, salary slips, and market volatility.