The Section 10(13A) framework
HRA is a salary component meant to subsidize rented accommodation. Section 10(13A) of the Income Tax Act exempts a portion of it from tax. The "minimum of three" formula prevents over-claiming.
The three values:
- Actual HRA received from employer in the financial year.
- 50 percent of basic salary (metro cities only) or 40 percent of basic (non-metro). Basic excludes HRA, DA (unless part of basic for retirement), and special allowances.
- Actual rent paid in the FY minus 10 percent of basic salary.
The HRA exemption equals the smallest of these three numbers. The remaining HRA is added to taxable income.
Metro definition is narrow: only Mumbai, Delhi, Kolkata, Chennai qualify. Bengaluru, Hyderabad, Pune, Ahmedabad, Gurgaon, Noida - all non-metro for HRA purposes. The 10 percent metro premium of basic translates to roughly Rs 50,000-Rs 1 lakh more annual exemption for high earners.
Worked example: Bengaluru (non-metro) Rs 12 lakh CTC
Akash works in Bengaluru. His salary structure for FY 2025-26:
Basic salary: Rs 6,00,000 (50 percent of CTC)
HRA from employer: Rs 2,40,000 (20 percent of CTC, common structure)
Other allowances: Rs 1,60,000
Employer PF + bonus: Rs 2,00,000
Gross CTC: Rs 12,00,000
Monthly rent paid: Rs 30,000 (annual Rs 3,60,000) for a 2BHK in Whitefield.
HRA exemption calculation:
- Actual HRA received: Rs 2,40,000
- 40 percent of basic (non-metro): 0.40 x Rs 6,00,000 = Rs 2,40,000
- Rent paid minus 10 percent of basic: Rs 3,60,000 - Rs 60,000 = Rs 3,00,000
Minimum: Rs 2,40,000 (item 1 and 2 tied).
HRA exemption: Rs 2,40,000
Taxable HRA: Rs 0
Tax saving at 30 percent slab plus 4 percent cess: Rs 74,880 per year.
If Akash worked in Mumbai (metro) with the same numbers
- 50 percent of basic: Rs 3,00,000
- Rent paid minus 10 percent basic: Rs 3,00,000
- Actual HRA: Rs 2,40,000
- Minimum: Rs 2,40,000 (capped by actual HRA received)
The employer would need to increase HRA component for Akash to get the full metro benefit. With Rs 3,00,000 HRA in Mumbai: full exemption Rs 3,00,000, saving Rs 93,600 annually.
| City | Tier | HRA % of basic |
|---|---|---|
| Mumbai | Metro | 50% |
| Delhi | Metro | 50% |
| Kolkata | Metro | 50% |
| Chennai | Metro | 50% |
| Bengaluru | Non-metro | 40% |
| Hyderabad | Non-metro | 40% |
| Pune | Non-metro | 40% |
| Gurgaon | Non-metro | 40% |
| All other cities | Non-metro | 40% |
Three formula deep-dive with edge cases
Formula 1 (Actual HRA): straightforward. Look at your Form 16 or salary slip. HRA from April 2025 to March 2026.
| Formula 2 (Percentage of basic) | Formula 3 (Rent minus 10 percent of basic) |
|---|---|
| Metro: 50 percent | Annual rent paid must equal rent receipts plus any maintenance you paid that the landlord declared. |
| Non-metro: 40 percent | Subtract 10 percent of annual basic salary. |
| Basic salary excludes most allowances. Include "basic + DA forming part of pension" if applicable. | This formula is the most restrictive at low rents. At high rents, becomes generous. |
| The percentage is calculated on basic actually earned in the year, not designated. |
Edge cases:
A. Mid-year city change: split into months. Calculate HRA exemption separately for each period (metro for X months, non-metro for Y months). Sum them.
B. Rent paid to parents: legal if real. Rent receipts, transfer to parent bank account, and parent declaring this income in their ITR. IT Department scrutinizes these.
C. Joint rent with spouse: split as actually paid. Both can claim HRA exemption on their respective portions.
D. Living with family in own home, no rent: zero exemption. HRA becomes fully taxable.
E. Home loan + HRA both: legal if you rent in your work city while owning a property in another city. Each is separately treated.
What documents you actually need
| Rent receipts (mandatory) | Landlord PAN (mandatory above Rs 1 lakh/year) | Lease agreement (recommended) | Form 12BB | Bank statements | Aadhaar-PAN link |
|---|---|---|---|---|---|
| One per month, ideally | Section 192(2C) requires employer to obtain landlord PAN if annual rent exceeds Rs 1,00,000 | Not legally required but useful in case of scrutiny | Annual declaration to employer in January-February | Show actual transfer to landlord | Mandatory for all ITR filings. Unlinked PAN is deactivated. |
| Must include: landlord name, full address, rent amount, period, mode of payment, landlord signature | Without PAN: employer cannot give HRA exemption beyond Rs 1 lakh | Especially important for parent-rent arrangements | Lists HRA claim, deductions, and other tax investments | IT Department may request these in scrutiny cases | |
| Revenue stamp if rent exceeds Rs 5,000/month (some employers still require) | TDS at 5 percent applies on rent if total annual rent exceeds Rs 50,000/month (Section 194-IB) | Employer adjusts TDS for the final quarters | |||
| Photocopies are OK for employer submission; keep originals |
Filing HRA when employer did not apply it
Sometimes the employer deducts TDS without considering HRA - for example, you joined mid-year and did not submit Form 12BB in time, or you rent privately and HR considered HRA fully taxable. You can still claim HRA at ITR filing.
Process:
- Calculate the exemption per the three-formula minimum.
- In ITR-1 or ITR-2, under "Salary," reduce taxable salary by the HRA exemption.
- Keep all supporting documents: rent receipts, lease, landlord PAN.
- File on or before July 31, 2026.
- Refund is processed in 21-45 days.
If scrutiny notice is received (Section 143(2))
- Respond with rent receipts, bank transfers, lease agreement.
- For parent-rent cases, show parent ITR declaring this income.
Most HRA claims pass without issue. Scrutiny is more likely for high-rent claims (above Rs 50K/month), rent-to-parents arrangements, or where AIS shows zero matching rental transaction.
Run the math for your situation
Use our IN calculator to plug in your own numbers.