HRA Exemption under Section 10(13A)

The HRA exemption under Section 10(13A) is the least of three amounts, old regime only. The formula, the metro rule, salary, and worked examples.

Updated 16 July 2026 · Reviewed by Salary-Calculator.in

The HRA exemption under Section 10(13A) is the income-tax exemption a salaried employee who pays rent can claim on part of the house rent allowance received, granted by Section 10(13A) of the Income-tax Act, 1961 read with Rule 2A of the Income-tax Rules, 1962, and equal to the least of three amounts. It is available only under the old tax regime, and it is worthless to an employee who pays no rent, however large the allowance. For a central government employee , the house rent allowance is otherwise fully taxable, so this exemption is the only relief on it.

The exemption is one of the most-claimed and most-misunderstood items in a salary return, because two of its terms, salary and metro, do not mean what the pay rules mean by the same words, and because the interaction with the regime choice, the home loan, and rent paid to family trips up many filers. This article sets out the least-of-three formula, the definition of salary, the metro rule and why it rarely matters to a government employee, worked examples, the documentation and conditions, the Section 80GG alternative for those without HRA, and the cases where no exemption is available. For the allowance itself, its 30, 20, and 10 per cent rates and the city classification, see the house rent allowance article; to compute the figure, the HRA exemption calculator applies the formula to your inputs.

Every load-bearing figure below is drawn from the Income-tax Act and Rules or the governing Office Memorandum and is cited. Amounts and the metro list stated as current are for the financial year 2025-26, the return filed in 2026; a forward change from the financial year 2026-27 is flagged where it applies.

What the exemption is and who can claim it

The house rent allowance is part of taxable salary. Section 10(13A) carves out an exemption from it for an employee who actually pays rent for the accommodation they occupy, so that the part of the allowance that genuinely funds rent is not taxed. The exemption is not the whole allowance and is not a flat figure; it is computed each year, and each month where the figures change, as the least of three amounts.

Three gateway conditions decide whether any exemption is available at all. First, the employee must receive a house rent allowance: an employee in government accommodation draws no HRA and has nothing to exempt. Second, the employee must actually pay rent for a home they do not own and occupy: an employee living in their own house, or paying no rent, gets no exemption even while drawing the allowance. Third, the employee must be under the old tax regime, because the default new regime disallows the exemption. An employee who meets all three computes the exemption; anyone failing one of them has the whole allowance taxed.

The least-of-three computation

Under Section 10(13A) read with Rule 2A, the exempt house rent allowance is the least of the following three amounts, worked out for the period the rented accommodation was occupied.

Limb	Amount
1. Actual allowance	The house rent allowance actually received for the period
2. Rent over 10 per cent	The rent actually paid, minus 10 per cent of salary for the period
3. Metro or non-metro cap	50 per cent of salary if the home is in a metro, otherwise 40 per cent of salary

The smallest of the three is exempt; the rest of the allowance is taxable. Two features of the second limb drive most results. It is capped by the rent actually paid, so a low rent produces a low exemption, and it turns negative when the rent is below 10 per cent of salary, in which case the exemption is nil. This is why the exemption tracks rent rather than the allowance: an employee who pays little rent gets little exemption no matter how large the HRA, and an employee who pays no rent gets nothing. The HRA exemption calculator evaluates all three limbs from a salary, rent, and city input.

What counts as salary

The word salary in this formula has a specific, narrow meaning that is not the gross pay on the salary slip. For Rule 2A, salary is basic pay, plus the dearness allowance that counts towards retirement benefits, plus any commission fixed as a percentage of turnover. It excludes every other allowance and perquisite: transport allowance, the house rent allowance itself, overtime, and bonuses do not enter it.

For a central government employee the definition resolves cleanly. The dearness allowance paid to central government employees counts towards retirement benefits, so salary for the HRA exemption is basic pay plus dearness allowance. At the current dearness allowance of 60 per cent, salary for this purpose is basic pay multiplied by 1.60. The figure is taken on a due basis for the months the rented home was occupied, so an employee who rented for part of the year uses the salary and rent of those months only, not the annual totals.

Metro versus non-metro: the tax rule is not the pay rule

The third limb turns on whether the rented home is in a metro, and this is the single biggest source of confusion, because the tax rule and the pay rule use the word differently.

For the financial year 2025-26 return, only four cities are metros for the 50 per cent limb: Delhi, Mumbai, Kolkata, and Chennai. Every other city uses the 40 per cent limb, including Bengaluru, Hyderabad, Pune, and Ahmedabad. This four-city list is set by Rule 2A and has stood for decades. It is entirely separate from the 7th CPC city classification for HRA , under which eight cities are X class and attract the allowance at 30 per cent of basic pay. An employee posted in Bengaluru draws the allowance at the X class rate of 30 per cent, because Bengaluru is X class for pay, but computes the tax exemption on the 40 per cent limb, because Bengaluru is not a metro for tax. Confusing the two lists is the classic error.

Here is the point that matters most for a central government employee: the third limb almost never decides the exemption, so the metro question is usually moot. The house rent allowance is at most 30 per cent of basic pay, while the 40 per cent limb works out to 40 per cent of basic pay plus dearness allowance, which at 60 per cent dearness allowance is about 64 per cent of basic pay, and the 50 per cent metro limb is about 80 per cent of basic pay. Both are far larger than the 30 per cent HRA, so the third limb is never the smallest of the three for a central government employee. The exemption is therefore always the lesser of the actual allowance and the rent-over-10-per-cent limb, and whether a city is a tax metro makes no difference to it. The metro rule matters mainly to private employees whose HRA can approach half of salary.

A forward change is worth noting but does not affect this year. From the financial year 2026-27, the tax metro list is reported to expand to eight cities, adding Bengaluru, Hyderabad, Pune, and Ahmedabad, under the Income-tax Rules, 2026 made with the Income-tax Act 2025 , aligning the tax list with the X class pay list. The status of that change should be verified against the notified rule before it is relied on, and returns for the financial year 2025-26 filed in 2026 continue to use the four-city list. Because the third limb rarely binds for a government employee, the expansion changes little for them in practice.

Worked examples

Take a Level 7 employee with basic pay of Rs. 44,900 and dearness allowance at 60 per cent, so salary for the exemption is Rs. 71,840 a month, drawing the allowance at the X class rate of 30 per cent, which is Rs. 13,470 a month, and paying rent of Rs. 18,000 a month.

Posted in Delhi, a tax metro, the three limbs are the actual allowance of Rs. 13,470; the rent over 10 per cent of salary, Rs. 18,000 minus Rs. 7,184, which is Rs. 10,816; and 50 per cent of salary, Rs. 35,920. The least is Rs. 10,816, so Rs. 10,816 a month is exempt and Rs. 2,654 of the allowance is taxable.

Posted in Bengaluru, an X class city for pay but a non-metro for tax, the same employee draws the same Rs. 13,470 allowance and pays the same Rs. 18,000 rent. The limbs are Rs. 13,470; Rs. 10,816; and 40 per cent of salary, Rs. 28,736. The least is again Rs. 10,816. The exemption is identical to the Delhi case, because the rent-linked limb binds in both and the metro cap is irrelevant. This is the general position for a government employee.

A third case shows when nothing is exempt. If the same employee pays rent of only Rs. 6,000 a month, the second limb is Rs. 6,000 minus Rs. 7,184, which is negative, so the exemption is nil and the whole Rs. 13,470 allowance is taxable. Low rent, or rent below 10 per cent of salary, wipes out the exemption regardless of the allowance drawn.

Documentation and conditions

The exemption is claimed on evidence, and a central government employee usually declares it to the Drawing and Disbursing Officer during the year so that tax is deducted correctly, then reflects it in the return.

Rent receipts are the basic proof and should be retained; the receipt requirement is formally waived only where the house rent allowance does not exceed Rs. 3,000 a month, but keeping receipts is prudent in every case. Where the annual rent exceeds Rs. 1,00,000, the employee must report the landlord’s Permanent Account Number to the employer, and if the landlord has no PAN, a signed declaration from the landlord is accepted in its place. The declaration to the employer is made through Form 12BB. An employee can claim the HRA exemption and, separately, the home-loan interest deduction under Section 24(b) in genuine cases, such as an owned house in a different city or one not reasonably occupiable from the place of work, since the two provisions address different houses. Rent paid to a parent or other family member qualifies if the arrangement is genuine, with actual payment, receipts, and the recipient declaring the rent as income; a paper arrangement is disallowed.

How to claim it through the year

The exemption is given effect in two stages, and getting the first stage right avoids a cash-flow squeeze from over-deduction of tax.

During the year, the employee declares the rent and the expected HRA exemption to the Drawing and Disbursing Officer on Form 12BB, with rent receipts and, where the annual rent exceeds Rs. 1,00,000, the landlord’s Permanent Account Number or the landlord’s declaration. On that basis the office reduces the exempt amount from taxable salary and deducts a smaller TDS on salary each month, so the relief is enjoyed as it accrues rather than claimed back later. The exempt figure then appears in the Form 16 the office issues after the year. At filing, the employee claims the exemption in the return under the old regime, matching the Form 16, and retains the receipts and PAN record in case the return is examined. An employee who missed declaring it to the office can still claim the correct exemption directly in the return, which will generate a refund of the excess tax deducted. A pensioner receives no house rent allowance, so the exemption does not arise on pension income; it is a serving-employee relief.

When you do not get HRA: Section 80GG

Not every employee receives a house rent allowance. An employee in a post that carries no HRA, or one whose pay structure omits it, cannot use Section 10(13A) at all, but is not left without relief.

Such an employee, if they pay rent and do not own a residence at the place of work, can claim a deduction under Section 80GG instead. It is the least of three amounts: Rs. 5,000 a month, 25 per cent of total income, and rent paid in excess of 10 per cent of total income. It is claimed on Form 10BA, requires that neither the employee nor their spouse or minor child owns a home at the place of work, and, like the HRA exemption, is available only under the old regime. The Rs. 5,000 monthly cap makes it markedly less generous than the Section 10(13A) exemption, which is why receiving HRA is the better position where there is a choice.

Government accommodation and the own-house case

Two situations remove the exemption entirely for a government employee, and both are common enough to state plainly.

An employee allotted government accommodation, such as General Pool Residential Accommodation, does not receive a house rent allowance at all; a licence fee is recovered from the salary instead. With no allowance there is nothing to exempt, and the take-home salary reflects the recovery rather than an allowance. Separately, an employee who draws the house rent allowance but lives in their own house, or pays no rent, receives the allowance as fully taxable salary, because the second limb of the formula collapses to nil without rent. In both cases the correct treatment is to tax the allowance, if any, in full, and an employee in government accommodation should not attempt to claim an exemption that does not arise.

Old regime only, and the trade-off

Because the exemption lives only in the old regime, claiming it is inseparable from the regime decision. An employee who wants the HRA exemption must opt for the old versus new tax regime comparison in favour of the old regime, giving up the lower slab rates and the larger rebate of the new regime in exchange for the exemption and the other old-regime deductions.

Whether that is worthwhile is arithmetic, not principle. For an employee paying substantial rent in addition to other old-regime deductions such as the 80C investments and the standard deduction , the HRA exemption can tip the balance to the old regime; for one with little rent or few other deductions, the new regime usually wins despite the lost exemption. The income tax for government employees article sets out the break-even, and the income tax calculator computes both regimes side by side so the HRA exemption can be tested against the new regime’s lower rates.

Common errors that trigger disallowance

A handful of mistakes account for most HRA exemption disallowances, and each is avoidable.

Claiming the exemption under the new regime is the most frequent: an employee who has not opted for the old regime is taxed under the default new regime, where the exemption does not exist, so the claim is struck down. Treating an X class city as a tax metro is the second, applying the 50 per cent limb in Bengaluru or Hyderabad when the 40 per cent limb applies for the financial year 2025-26, though as shown above this rarely changes a government employee’s figure because the third limb seldom binds. Omitting the landlord’s Permanent Account Number where the annual rent exceeds Rs. 1,00,000 leads the office to deny the exemption in the salary computation. Claiming the exemption on a paper rental arrangement with a family member, without real payment or the recipient declaring the income, is disallowed on scrutiny. Claiming while living in one’s own house or in government accommodation, where no rent is paid, has no basis in the formula. And claiming an exemption larger than the rent actually paid ignores the second limb, which caps the exemption at rent over 10 per cent of salary. Keeping receipts, the PAN record, and a genuine payment trail defeats all of these.

Frequently Asked Questions (FAQs)

How is the HRA exemption calculated under Section 10(13A)?

The exemption is the least of three amounts: the actual house rent allowance received; the rent paid in excess of 10 per cent of salary; and 50 per cent of salary if the rented home is in a metro, or 40 per cent of salary elsewhere. Whichever of the three is smallest is exempt, and the balance of the HRA is taxable. If no rent is paid, the second amount is nil or negative, so no exemption is available whatever the HRA.

Is the HRA exemption available under the new tax regime?

No. The Section 10(13A) exemption is available only under the old tax regime. The new regime under Section 115BAC, which is the default, disallows it, so the whole house rent allowance is taxable there. An employee who wants the HRA exemption must choose the old regime and weigh it against the lower slab rates of the new regime.

Which cities count as metro for the HRA exemption?

For the financial year 2025-26 return, only four cities are metros for the 50 per cent limb: Delhi, Mumbai, Kolkata, and Chennai. Every other city, including Bengaluru, Hyderabad, Pune, and Ahmedabad, uses the 40 per cent limb. This is separate from the 7th CPC city classification, under which eight cities are X class for the HRA allowance itself. From the financial year 2026-27 the tax metro list is reported to expand to eight cities under the Income-tax Rules, 2026, but that should be verified against the notified rule.

What does salary mean for the HRA exemption?

For this computation salary means basic pay plus the dearness allowance that counts towards retirement benefits, plus any commission fixed as a percentage of turnover. For a central government employee it is effectively basic pay plus dearness allowance. It is taken on a due basis for the period the rented accommodation was actually occupied, not the full year if the tenancy was shorter.

Is a landlord's PAN needed to claim HRA exemption?

Yes, when the annual rent exceeds Rs. 1,00,000, the employee must report the landlord’s Permanent Account Number to the employer to claim the exemption through the salary. If the landlord has no PAN, a signed declaration from the landlord is accepted instead. Rent receipts are the basic proof, and are formally waived only where the HRA does not exceed Rs. 3,000 a month.

Can I claim HRA exemption and a home loan deduction together?

Yes, in genuine cases. An employee can claim the HRA exemption on rent paid for the house actually lived in and, separately, the home-loan interest deduction under Section 24(b) on an owned house, for example an owned house in another city, a let-out house, or a house not reasonably occupiable from the place of work. The two are not mutually exclusive, but the facts must justify both, and both fall under the old regime.

Can I claim HRA on rent paid to my parents?

Yes, if the arrangement is genuine. Rent paid to a parent or another family member qualifies for the HRA exemption provided rent is actually paid, receipts are kept, and the recipient declares the rent as income in their own return. A notional or paper arrangement without real payment is not allowed and is a common ground for disallowance.

What if I do not receive any HRA?

An employee who pays rent but receives no house rent allowance, and does not own a home at the place of work, can claim a deduction under Section 80GG instead. It is the least of Rs. 5,000 a month, 25 per cent of total income, and rent paid in excess of 10 per cent of total income, claimed on Form 10BA, and it too is available only under the old regime.

External references

References

Income-tax Act, 1961, Section 10(13A), on the exemption of house rent allowance.
Income-tax Rules, 1962, Rule 2A, on the least-of-three computation and the metro and non-metro limbs.
Income-tax Act, 1961, Section 80GG, on the deduction for rent paid where no house rent allowance is received, and Form 10BA.
Central Board of Direct Taxes, requirement to report the landlord’s Permanent Account Number where annual rent exceeds Rs. 1,00,000, and Form 12BB for declarations to the employer.
Ministry of Finance, Department of Expenditure, Office Memorandum No. 2/5/2017-E.II(B) dated 7 July 2017, on the house rent allowance rates of 30, 20, and 10 per cent and the city classification.
Income-tax Act, 1961, Section 115BAC, under which the new tax regime disallows the house rent allowance exemption.
Income-tax Rules, 2026, made with the Income-tax Act, 2025, reported to expand the metro list for the 50 per cent limb to eight cities from the financial year 2026-27.