House Rent Allowance (HRA) is one of the most valuable tax exemptions available to salaried employees in India. If you're paying rent, you could save ₹20,000 to ₹1.5 lakh per year in taxes — but only if you calculate it correctly and claim it under the old tax regime.

Who Can Claim HRA Exemption

To claim HRA exemption under Section 10(13A), you must meet all three conditions:

You are a salaried employee (not self-employed).
You actually receive HRA as part of your salary structure.
You are living in a rented house — you cannot claim HRA if you live in your own property.

Note: HRA exemption is only available under the old tax regime. If you opt for the new regime, HRA becomes fully taxable.

The Three HRA Calculation Rules

The exemption is the minimum of these three amounts:

Actual HRA received from your employer.
Rent paid minus 10% of basic salary. (Basic salary = Basic + Dearness Allowance, if applicable.)
40% or 50% of basic salary — 50% if you live in a metro city (Delhi, Mumbai, Chennai, Kolkata), 40% for all other cities.

The lowest of these three figures is the amount you can exempt from tax. Any HRA above this is added to your taxable income.

Metro vs Non-Metro Cities

The classification of "metro" for HRA purposes is specific — only four cities qualify:

Delhi (including NCR for this purpose)
Mumbai (including Thane and Navi Mumbai)
Chennai
Kolkata

Bangalore, Hyderabad, Pune, Ahmedabad, and other large cities are treated as non-metro for HRA purposes — they get 40% of basic, not 50%. This is a common source of errors in HRA calculations.

Step-by-Step Calculation Example

Let's work through an example for a Bangalore employee:

Monthly basic salary: ₹60,000 (annual: ₹7.2 lakh)
Monthly HRA received: ₹24,000 (annual: ₹2.88 lakh)
Monthly rent paid: ₹22,000 (annual: ₹2.64 lakh)
City: Bangalore (non-metro)

Now apply the three rules annually:

Actual HRA: ₹2,88,000
Rent paid − 10% of basic: ₹2,64,000 − ₹72,000 = ₹1,92,000
40% of basic (non-metro): 40% × ₹7,20,000 = ₹2,88,000

Minimum of the three = ₹1,92,000. This is your exempt HRA. The remaining ₹96,000 of HRA received is taxable.

Documents Required for HRA Claim

Your employer will ask for these documents to process TDS correctly:

Rent receipts — for rent above ₹1 lakh/year, the landlord's PAN is mandatory.
Rent agreement (lease deed) for verification.
Declaration that you are not residing in your own property.

If your employer doesn't process HRA exemption, you can still claim it directly in your ITR filing by including Form 10BA if required.

Common Mistakes to Avoid

Using CTC basic: Always use the basic from your payslip (the actual cash component), not the CTC structure.
Classifying Bangalore/Hyderabad as metro: These are non-metro for HRA — use 40%, not 50%.
Not keeping rent receipts: Receipts are required especially if annual rent exceeds ₹1 lakh.
Claiming HRA under new regime: HRA exemption is not available if you choose the new tax regime.