How the HRA exemption is worked out
If you live in rented housing and your salary includes house rent allowance, part of the HRA can be tax-free under the old regime. The exempt amount is the lowest of three figures, all for the period you rented:
- the HRA you actually received;
- the rent you paid, minus 10% of your salary;
- 50% of your salary if you live in Mumbai, Delhi, Kolkata, Chennai, Bengaluru, Hyderabad, Pune or Ahmedabad, or 40% anywhere else.
Here “salary” means basic pay plus dearness allowance where the DA counts for retirement benefits (and any commission fixed as a percentage of turnover). Allowances such as special allowance do not count.
What changed in 2026
The Income-tax Rules, 2026, which came into force with the Income-tax Act, 2025 on 1 April 2026, added Bengaluru, Hyderabad, Pune and Ahmedabad to the cities that get the 50% limit. Before that only Mumbai, Delhi, Kolkata and Chennai did. If you rent in one of the four new cities, your exemption can now be higher.
Things to remember
- HRA exemption is not available under the new regime. If you are on the new regime, all of your HRA is taxable.
- Keep rent receipts and your rental agreement. Your employer may also ask for your landlord’s PAN and other details before giving the exemption in your TDS.
- Paying rent to a parent can be allowed if the arrangement is real: rent is actually paid and the parent declares it as income.
- If you do not get HRA from your employer, a separate deduction for rent (80GG) may apply under the old regime; this calculator does not cover it.
Use your exemption in the old vs new regime calculator to see whether claiming it makes the old regime worth it.
Sources
- Upstox: final Income-tax Rules 2026 notified, HRA for eight cities
- Income Tax Department: Income-tax Act, 2025 in force from 1 April 2026 (PDF)
- Income Tax Department: tax rates for individuals
Figures last checked against these sources on 4 November 2026. This tool gives an estimate for planning, not tax, legal or financial advice.