HRA (House Rent Allowance)
Definition
A salary component providing tax exemptions for rent paid, available only under the Old Regime.
Key Takeaways
- HRA is a salary component providing tax exemptions for rent paid under Old Regime only.
- Exemption calculated as lowest of: actual HRA, rent minus 10% salary, or 50%/40% of salary.
- Metro cities (50% limit) now include Bengaluru, Hyderabad, Pune, and Ahmedabad from 2026.
- Not available under New Tax Regime; entire HRA is taxable if you opt for New Regime.
Detailed Explanation
House Rent Allowance (HRA) is a salary component provided by employers to salaried employees to cover their rental housing expenses. Under Section 10(13A) of the Income Tax Act, a portion of HRA is exempt from tax, but this exemption is available only under the Old Tax Regime. The New Tax Regime does not allow HRA exemption at all.
The HRA exemption is calculated as the lowest of three amounts: (1) Actual HRA received, (2) Rent paid minus 10% of basic salary, or (3) 50% of basic salary for metro cities (Delhi, Mumbai, Kolkata, Chennai, Bengaluru, Hyderabad, Pune, Ahmedabad) or 40% for non-metro cities. The remaining HRA amount is added back to taxable income. Budget 2026 expanded the metro city list by adding Bengaluru, Hyderabad, Pune, and Ahmedabad.