House Rent Allowance is one of the most common salary components, but the amount your employer pays you as HRA is almost never the amount that's actually exempt from tax. Section 10(13A) caps the exemption using a three-way comparison — and it's only available under the old tax regime.
The three limits
Your HRA exemption is the least of these three amounts:
- The actual HRA you received from your employer
- Rent paid, minus 10% of your Basic salary + DA
- 50% of Basic + DA if you live in a metro (Delhi, Mumbai, Kolkata, Chennai), or 40% for any other city
Whichever of these three is smallest becomes your exempt amount — the rest of your HRA is added to taxable income.
A worked example
Say your Basic + DA is ₹50,000/month (₹6,00,000/year), your employer pays you ₹25,000/month as HRA (₹3,00,000/year), you pay ₹18,000/month in rent (₹2,16,000/year), and you live in a metro city.
- Limit 1 — Actual HRA received: ₹3,00,000
- Limit 2 — Rent paid minus 10% of Basic: ₹2,16,000 − ₹60,000 = ₹1,56,000
- Limit 3 — 50% of Basic (metro): ₹3,00,000
The smallest of the three is ₹1,56,000 — so that's your exemption, even though you received ₹3,00,000 as HRA. The remaining ₹1,44,000 is taxable, added to your income like any other salary component.
Why rent paid usually decides it
In most real cases, Limit 2 (rent minus 10% of Basic) ends up being the smallest of the three, because it directly reflects what you actually spent on rent. If you pay very little rent relative to your salary, your exemption can be small or even zero — receiving HRA doesn't guarantee a tax benefit if you're not paying rent that justifies it.
Two things people get wrong
- Claiming HRA without paying rent.If you own your home or don't pay rent, your exemption is zero regardless of how much HRA your employer pays.
- Forgetting it's old-regime only.The new tax regime doesn't allow HRA exemption at all — if you're on the new regime, this section doesn't apply to your tax calculation.
Calculate your exact exemption
Use the HRA Exemption Calculator to work out your own number, then feed the taxable portion into the Income Tax Calculator to see your final old regime tax liability.