Estimate HRA exemption using the three-part test (actual HRA, rent minus 10% salary, and salary percentage cap). This is typically relevant under the old tax regime.
Reviewed July 2026 · FY 2026–27 (AY 2027–28) tax slabs in engine · Methodology
The three tests are computed from your inputs — see the accuracy card for regime and payroll caveats.
Engine snapshot: Basic ₹8,00,000/year, DA ₹0/year, HRA received ₹3,60,000/year, rent ₹3,00,000/year, metro. Annual exemption (min of three tests) ₹2,20,000.
HRA exemption is generally a feature of the old regime tax computation. Treat this as a planning reference for rent vs HRA structuring.
House Rent Allowance (HRA) is a salary component that can significantly reduce your income tax liability under the old regime, through the Section 10(13A) exemption. The key thing most employees misunderstand: receiving HRA does not automatically mean all of it is tax-exempt. The exemption is the lowest of three different calculated limits, which means your actual exempted amount depends on your salary structure, your rent, and your city.
The three-part Section 10(13A) test: The exemption is the lowest of (1) actual HRA received from the employer, (2) actual rent paid minus 10% of Basic salary, and (3) 50% of Basic salary if you live in a metro city (Mumbai, Delhi, Kolkata, Chennai) or 40% of Basic salary for all other locations. You need all three numbers to find the correct exemption — which is why a calculator that asks for all three inputs is necessary for an accurate estimate.
HRA exemption applies only under the old tax regime. If you choose the new regime, your HRA is taxable even if you pay rent. This is the most common reason employees with significant rent should compare regimes explicitly rather than defaulting to whichever their employer assumed. The HRA exemption can reduce taxable income substantially for someone paying ₹20,000–₹40,000/month in rent in a metro city — sometimes making the old regime the better choice even accounting for the new regime's lower slab rates.
Documentation matters: HRA exemption can be claimed at filing time with actual rent receipts, but if the annual rent exceeds ₹1 lakh, the landlord's PAN is required. Employers typically collect rent declarations and receipts mid-year and adjust TDS accordingly. If you forget to submit proofs on time, you can still claim the exemption at ITR filing — but you may face excess TDS during the year.
House Rent Allowance (HRA) is a salary component that partially offsets your rent expense. Section 10(13A) of the Income Tax Act allows a portion of HRA to be exempt from tax — but only if you are actually paying rent, and only under the old tax regime. If you opt for the new regime, HRA exemption is not available regardless of what your payslip shows.
The exemption does not apply to home owners. If you own the house you live in, the HRA component is fully taxable even if it is listed on your payslip.
The exempt amount is the lowest of three figures. You do not get to pick — the tax rules take whichever is smallest:
This means increasing your HRA component on paper does not automatically give you a larger exemption if rent actually paid is the binding constraint.
The tax saving equals the exemption amount multiplied by your marginal tax rate. For someone in the 30% slab (income above ₹15 LPA under old regime) with an exemption of ₹1.5 lakh, the annual saving is approximately ₹1.5L × 30% × (1 + 4% cess) = roughly ₹46,800. At the 20% slab, the same exemption saves around ₹31,200/year.
This is why the old regime can still make sense for employees paying significant rent in metro cities, particularly above ₹15,000/month, even though the new regime's slabs are lower.