HRA example
HRA exemption on ₹40,000 rent, ₹1,00,000 basic
With a ₹1,00,000 monthly basic, ₹50,000 HRA and ₹40,000 rent in a metro city, ₹30,000 a month of your HRA is tax-free under the old regime. That is ₹3,60,000 a year, and the remaining ₹20,000 a month is taxed as salary.
Result
₹30,000
Tax-free HRA a month
- HRA received (50% of basic)
- ₹50,000
- Exempt a year
- ₹3,60,000
- Taxable HRA a month
- ₹20,000
- Tax saved a year at the 30% slab
- ₹1,12,320
- Tax saved a year at the 20% slab
- ₹74,880
The exemption is the lowest of three tests, and here it is "rent minus 10% of basic" that sets it.
Paying ₹60,000 rent or more would make your whole HRA tax-free.
HRA exemption is available only under the old tax regime.
The three tests (monthly)
| Test | Amount |
|---|---|
| HRA you receive | ₹50,000 |
| Rent minus 10% of basic | ₹30,000 |
| 50% of basic (metro) | ₹50,000 |
The exemption is the lowest of the three, calculated for each month you pay rent.
Exemption at other rents, ₹1,00,000 basic
| Monthly rent | Exempt a month | Exempt a year |
|---|---|---|
| ₹20,000 | ₹10,000 | ₹1,20,000 |
| ₹30,000 | ₹20,000 | ₹2,40,000 |
| ₹40,000 | ₹30,000 | ₹3,60,000 |
| ₹50,000 | ₹40,000 | ₹4,80,000 |
| ₹60,000 | ₹50,000 | ₹6,00,000 |
How this is worked out
Section 10(13A) and Rule 2A exempt the lowest of three amounts: the HRA you actually receive (₹50,000), the rent you pay minus 10% of basic salary (₹40,000 − ₹10,000 = ₹30,000), and 50% of basic salary for a metro city (₹50,000).
The lowest here is ₹30,000, so that is the tax-free part. "Salary" for this purpose is basic pay plus any dearness allowance that counts for retirement benefits; if your pay includes such DA, the exemption is higher than shown.
Only Delhi, Mumbai, Kolkata and Chennai count as metros for HRA, so Bengaluru, Hyderabad and Pune use the 40% limit. The exemption is claimed through your employer with rent receipts, and your landlord's PAN is needed if rent exceeds ₹1 lakh a year.
Frequently asked questions
Results are estimates for education and planning, not financial advice.
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