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

Last updated: July 2026

House Rent Allowance (HRA) is a common component of salary for most salaried employees in India. Under Section 10(13A) of the Income Tax Act, a portion of the HRA you receive is exempt from tax — making it one of the most valuable tax-saving benefits available. The exemption depends on how much rent you actually pay, your basic salary, and whether you live in a metro or non-metro city. Understanding how the three-condition formula works is essential to maximising your tax savings and avoiding mistakes when filing your ITR.

Important: HRA exemption under Section 10(13A) is available only under the Old Tax Regime. If you have opted for the New Tax Regime (default from FY 2026-27), you cannot claim HRA exemption. Use DesiCalc's Income Tax Calculator to compare which regime works better for you.

The Three-Condition Formula

Under Section 10(13A), HRA exemption is calculated as the minimum of three conditions. The Income Tax Act does not allow you to pick the highest — you must take the smallest figure. Here is how each condition works:

Condition 1

The actual HRA received from your employer during the year. This is calculated as the monthly HRA component multiplied by 12 months.

Condition 2

The actual rent you paid during the year minus 10% of your basic salary plus dearness allowance. If this result is negative, it is treated as ₹0.

Condition 3

50% of (Basic Salary + DA) for metro cities, or 40% for non-metro cities, calculated on an annual basis.

Formula Summary:
HRA Exemption = Minimum of (C1, C2, C3)
Where:
C1 = Actual HRA received (annual)
C2 = Max[0, Rent Paid (annual) − 10% × (Basic + DA) (annual)]
C3 = (Basic + DA) (annual) × 50% (metro) or × 40% (non-metro)

Taxable HRA = Actual HRA Received − HRA Exemption

The exemption amount is the tax-free portion of your HRA. The remaining HRA — the difference between what you actually received and the exemption — is added to your total taxable income and taxed according to your income tax slab.

Metro vs Non-Metro — Which Cities Qualify?

One of the most common misconceptions among taxpayers is which cities qualify as "metro" for HRA purposes. Under the Income Tax Act, only four cities are classified as metro for computing Condition 3 (the 50% threshold):

Despite being major metropolitan areas with a high cost of living, the following cities are NOT considered metro under the Income Tax Act for HRA purposes:

For these non-metro cities, Condition 3 is limited to 40% of basic salary + DA instead of 50%. This means a lower potential exemption for employees living in Bengaluru or Hyderabad despite the high rents these cities command.

Why this matters: The metro classification was defined decades ago and has not been updated since. Even though Bengaluru, Hyderabad, and Pune now have rents comparable to or higher than the official metro cities, the law still treats them as non-metro. This is a common trap — many employees in these cities assume they qualify for the 50% benefit and end up under-reporting their taxable income.

Worked Examples

Example A: Non-Metro — Condition 2 is Limiting

Basic Salary: ₹50,000/month | DA: ₹0 | HRA Received: ₹20,000/month | Rent Paid: ₹18,000/month | Non-Metro

Condition 1₹20,000 × 12 = ₹2,40,000
Condition 2(₹18,000 × 12) − 10% of (₹50,000 × 12) = ₹2,16,000 − ₹60,000 = ₹1,56,000
Condition 340% of (₹50,000 × 12) = 40% of ₹6,00,000 = ₹2,40,000
HRA ExemptionMinimum(₹2,40,000, ₹1,56,000, ₹2,40,000) = ₹1,56,000
Taxable HRA₹2,40,000 − ₹1,56,000 = ₹84,000

In this example, Condition 2 (rent paid minus 10% of basic) is the lowest and therefore the limiting factor. The employee saves tax on ₹1,56,000 of their HRA, and the remaining ₹84,000 is added to taxable income.

Example B: Metro — Condition 1 is Limiting

Basic Salary: ₹80,000/month | DA: ₹0 | HRA Received: ₹15,000/month | Rent Paid: ₹35,000/month | Metro (Delhi)

Condition 1₹15,000 × 12 = ₹1,80,000
Condition 2(₹35,000 × 12) − 10% of (₹80,000 × 12) = ₹4,20,000 − ₹96,000 = ₹3,24,000
Condition 350% of (₹80,000 × 12) = 50% of ₹9,60,000 = ₹4,80,000
HRA ExemptionMinimum(₹1,80,000, ₹3,24,000, ₹4,80,000) = ₹1,80,000
Taxable HRA₹1,80,000 − ₹1,80,000 = ₹0

Condition 1 (actual HRA received) is the lowest at ₹1,80,000 — so the full HRA amount is exempt. The employee pays no tax on the HRA component despite paying ₹4,20,000 in rent. This happens when the employer provides a relatively low HRA compared to the rent paid.

Example C: Non-Metro — Condition 2 is Zero

Basic Salary: ₹1,00,000/month | DA: ₹0 | HRA Received: ₹30,000/month | Rent Paid: ₹8,000/month | Non-Metro

Condition 1₹30,000 × 12 = ₹3,60,000
Condition 2(₹8,000 × 12) − 10% of (₹1,00,000 × 12) = ₹96,000 − ₹1,20,000 = −₹24,000 → ₹0
Condition 340% of (₹1,00,000 × 12) = 40% of ₹12,00,000 = ₹4,80,000
HRA ExemptionMinimum(₹3,60,000, ₹0, ₹4,80,000) = ₹0
Taxable HRA₹3,60,000 − ₹0 = ₹3,60,000

Here, the rent paid (₹8,000/month) is lower than 10% of basic salary (₹10,000/month), making Condition 2 negative — which is taken as ₹0. Since ₹0 is the minimum of all three conditions, the HRA exemption is ₹0. The entire HRA of ₹3,60,000 becomes taxable. This example is common among employees living in low-rent accommodation or company-provided housing where the rent paid is minimal.

Documents Required to Claim HRA Exemption

To claim HRA exemption, you need to provide certain documents to your employer (usually during the proof submission window in January-February) and retain them for your ITR filing:

Rent Receipts

Required if your monthly rent exceeds ₹3,000. Receipts should show the landlord's name, address, rent amount, date of payment, and period. A minimum of one receipt per month is typically required.

Landlord's PAN

Required if your annual rent exceeds ₹1,00,000. The landlord's PAN must be declared to your employer. If the landlord does not have a PAN, they must provide a self-declaration. Without PAN, the employer may deduct TDS at a higher rate.

Rent Agreement

A registered rent agreement or lease deed serves as primary evidence of the rental arrangement. It establishes the landlord-tenant relationship, the rent amount, and the tenancy period.

Proof of Rent Payment

Bank statements, UPI payment records, or rent receipts showing actual payment. For high-value rents, a clear trail of bank transfers is strongly recommended over cash payments.

What if your landlord refuses to give PAN? Many tenants face this issue. If the landlord does not have a PAN, ask them to sign a declaration stating so (in Form 60 or a simple affidavit). However, you should be aware that the tax department may scrutinise claims where rent exceeds ₹1,00,000 per year without a landlord PAN. In such cases, keep all rent payment proof handy. Most employers require the PAN declaration by January-February of the financial year to adjust the HRA exemption in your Form 16.

What If You Don't Receive HRA?

If your employer does not provide HRA as part of your salary (or you are self-employed or a freelancer), you may still be able to claim a deduction for rent paid under Section 80GG of the Income Tax Act.

Section 80GG — Key Details

Section 80GG is a less generous alternative to HRA exemption (max ₹60,000 per year vs potentially lakhs under HRA), but it is the only option for those without an HRA component. Unlike HRA exemption where the tax benefit depends on the salary structure, 80GG provides a fixed maximum benefit.

For a detailed comparison of both provisions, see our guide on HRA Exemption vs Section 80GG.

Frequently Asked Questions

Yes, you can claim both HRA exemption under Section 10(13A) and home loan interest deduction under Section 24(b) simultaneously if you live in a rented house in one city while owning a house in another city. The owned house is treated as deemed let-out and you can claim both benefits. This is a common and perfectly legal tax-saving strategy.
You can claim HRA exemption by paying rent to your parents, provided they are the legal owners of the property and you have a valid rent agreement. The rent must be actually paid (not just on paper) and your parents must declare it as "Income from House Property" in their ITR. However, you cannot pay rent to your spouse or minor children as this is not recognised under the Act. Also, ensure the rent amount is at market rates — paying an artificially high rent may attract scrutiny.
Yes, owning a house in another city does not disqualify you from claiming HRA exemption for rented accommodation in the city where you live and work. The Income Tax Act does not impose any restriction on claiming HRA purely on the basis of house ownership. The owned house (if not self-occupied) is treated as deemed let-out and income from it is calculated separately. You can claim both the HRA exemption and the home loan deduction on the owned property.
If you do not submit rent receipts to your employer by the proof submission deadline (typically January-February), your employer will deduct TDS on the full HRA amount without granting any exemption. However, you are not permanently blocked from claiming the exemption. You can still claim HRA deduction while filing your ITR by entering the correct rent details in the appropriate schedule. Keep all rent receipts and supporting documents as evidence in case the tax department issues a scrutiny notice.
Yes, Dearness Allowance (DA) is included along with Basic Salary in the HRA calculation. Both Condition 2 (10% of Basic + DA) and Condition 3 (40%/50% of Basic + DA) use the combined figure of Basic Salary and Dearness Allowance. If your salary structure includes a separate DP (Dearness Pay), that is also included. However, other allowances such as special allowance, conveyance allowance, or medical allowance are not included in the HRA calculation.
No. The HRA exemption is the minimum of the three conditions, and Condition 1 is the actual HRA received from your employer. Therefore, the exemption can never exceed the HRA you actually received. In the best case, the exemption equals the full HRA amount (making taxable HRA ₹0). It can never be more than the total HRA received during the financial year.

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