HRA Exemption Rules Under Section 10(13A) — Complete Guide for 2026

What is HRA Exemption and Who Can Claim It?

House Rent Allowance (HRA) is one of the most valuable tax-saving components for salaried Indians who live in rented accommodation. Under Section 10(13A) of the Income Tax Act, the HRA you receive from your employer is partially or fully exempt from income tax — but only if you actually pay rent and choose the old tax regime.

HRA exemption is NOT available under the new tax regime introduced in FY 2020-21. This is one key reason many individuals with significant HRA benefits still prefer the old regime.

The Three-Condition Rule for HRA Exemption

HRA exemption is calculated as the minimum of three amounts:

Condition 1: Actual HRA received from employer

Whatever your employer pays as HRA per year.

Condition 2: 50% of Basic Salary (Metro) or 40% of Basic (Non-Metro)

• Metro cities: Delhi, Mumbai, Chennai, Kolkata (as per Income Tax rules — not expanded since 1997!)
• All other cities including Bengaluru, Hyderabad, Pune, Ahmedabad = Non-Metro (40%)

Condition 3: Actual Rent Paid minus 10% of Annual Basic Salary

= Total annual rent − (10% × Annual Basic Salary)

The exempt amount = Minimum of all three conditions

Worked Example: IT Professional in Bengaluru

Given:

• Basic Salary: ₹60,000/month = ₹7,20,000/year
• HRA Received: ₹30,000/month = ₹3,60,000/year
• Rent Paid: ₹25,000/month = ₹3,00,000/year
• City: Bengaluru (Non-Metro — 40% rule applies)

Calculation:

• Condition 1: ₹3,60,000 (actual HRA received)
• Condition 2: 40% × ₹7,20,000 = ₹2,88,000
• Condition 3: ₹3,00,000 − 10% of ₹7,20,000 = ₹3,00,000 − ₹72,000 = ₹2,28,000

Minimum = ₹2,28,000 → This is the tax-exempt HRA

The remaining ₹3,60,000 − ₹2,28,000 = ₹1,32,000 is taxable as salary.

Tax saved (at 20% slab): ₹2,28,000 × 20% = ₹45,600/year

Why Bengaluru is Not a Metro for HRA Purposes

This surprises many professionals. Under the Income Tax Act, only Mumbai, Delhi (NCR), Chennai, and Kolkata qualify as metro cities for the 50% HRA calculation. Bengaluru, Hyderabad, Pune, and other major cities are treated as non-metro despite their cost of living often exceeding the official metros.

This classification hasn't been updated since 1997, despite multiple representations to the Finance Ministry. For residents of Bengaluru or Hyderabad paying ₹30,000–₹50,000+ in rent, this costs several thousand rupees annually in additional tax.

Claiming HRA: Documents Required

1. **Rent Receipts**: Monthly receipts from your landlord (name, address, amount, signature)
2. **Rent Agreement**: Stamped rental agreement showing property address and rent amount
3. **Landlord's PAN**: Mandatory if annual rent exceeds ₹1,00,000 (₹8,333/month)
4. **Form 12BB**: Declaration submitted to your employer at the beginning of the financial year

If your annual rent exceeds ₹6,00,000 (₹50,000/month), you must deduct TDS at 5% from rent payments under Section 194-IB and deposit it with the government using Form 26QC.

Paying Rent to Parents: Is It Allowed?

Yes — paying rent to parents to claim HRA exemption is legally valid if:

• Your parents own the property where you reside
• Rent payment is genuine (with receipts, bank transfers preferred)
• Your parent declares the rental income in their ITR
• If rent > ₹1 lakh/year, you must take their PAN

This is a common and legal tax planning strategy, especially useful when parents are in a lower tax bracket.

HRA Exemption Under the New vs Old Tax Regime

Rule of thumb: Choose old regime if your HRA exemption + other deductions (80C, home loan, etc.) exceed ₹2,00,000 per year. Otherwise, the new regime's lower tax slabs usually win.

Use our HRA Exemption Calculator to calculate your exact tax savings under both regimes and determine the optimal choice for your situation.