The HRA Exemption Formula
Under Section 10(13A) of the Income Tax Act (available only under the old tax regime), your tax-exempt HRA is the lowest of three amounts:
- Actual HRA received from your employer
- 50% of Basic + DA (for metro cities) or 40% of Basic + DA (for non-metro cities)
- Rent paid minus 10% of Basic + DA
Whichever of these three amounts is smallest becomes your exempt HRA — the remainder of your HRA received is added to your taxable income.
Why the Lowest Value Applies
This three-way test ensures the exemption reflects your actual housing cost burden relative to your salary, rather than simply exempting your full HRA regardless of how much rent you actually pay. Someone receiving a large HRA but paying comparatively little rent will find their exemption capped by the "rent minus 10% of salary" condition.
Important Conditions
- HRA exemption is only available under the old tax regime — it is not available under the new regime
- You must actually be paying rent for accommodation you live in (not owned by you) to claim this exemption
- Rent receipts and, for annual rent above ₹1 lakh, your landlord's PAN, are typically required as proof