House rent allowance (HRA) can be partly or fully tax-free if you live in rented housing and choose the old tax regime. The tax-free amount is the lowest of three limits. Here is how it works in practice.
The three limits
- HRA actually received.
- Rent paid minus 10% of basic + DA.
- 50% of basic + DA in Delhi, Mumbai, Kolkata, Chennai, Bengaluru, Hyderabad, Pune or Ahmedabad; 40% elsewhere.
Three worked examples (yearly)
| Monthly basic / HRA / rent | City | Limit 1 | Limit 2 | Limit 3 | Tax-free HRA |
|---|---|---|---|---|---|
| ₹30,000 / ₹10,000 / ₹20,000 | Bengaluru | ₹1,20,000 | ₹2,04,000 | ₹1,80,000 | ₹1,20,000 (all of it) |
| ₹50,000 / ₹20,000 / ₹18,000 | Chennai | ₹2,40,000 | ₹1,56,000 | ₹3,00,000 | ₹1,56,000 |
| ₹40,000 / ₹20,000 / ₹25,000 | Coimbatore | ₹2,40,000 | ₹2,52,000 | ₹1,92,000 | ₹1,92,000 |
In the second example, ₹84,000 of HRA stays taxable because rent is low compared with salary. Paying more rent does not always help: the exemption can never exceed the HRA you receive.
Documents and rules
- Keep rent receipts or a rent agreement; your employer will ask for proof.
- If rent is more than ₹1 lakh a year, you need your landlord’s PAN.
- You can pay rent to your parents if they own the home, but they must show it as income in their tax return.
- HRA exemption is not available under the new tax regime.
Frequently asked questions
What changed in FY 2026-27?
Under the Income-tax Rules 2026, Bengaluru, Hyderabad, Pune and Ahmedabad joined Delhi, Mumbai, Kolkata and Chennai in the 50% group.
Can I claim HRA and a home loan together?
Yes, if you live in a rented home, for example because your own home is in another city. See the home loan tax benefit calculator.
An estimate; confirm with your employer or a tax professional. Related: Old vs new tax regime