HRA Exemption 2026 -New Rules from April 1 | House Rent Allowance Tax Benefits, Calculation, New City Rules and Complete Guide for FY 2026-27

• HRA or House Rent Allowance is one of the most valuable tax-saving components in an Indian salaried employee's salary structure
• Under Section 10(13A) of the Income Tax Act read with Rule 2A of the Income Tax Rules, a portion of HRA received from the employer is exempt from income tax
• HRA exemption is available exclusively under the old tax regime -- taxpayers opting for the new tax regime cannot claim any HRA exemption, and the entire HRA received becomes fully taxable
• From April 1, 2026, Bengaluru, Pune, Hyderabad and Ahmedabad have been elevated to metro city status -- bringing their HRA exemption limit from 40% to 50% of salary, a significant and long-awaited relief for salaried professionals in India's tech and business hubs
• This blog covers everything you need to know about HRA exemption in FY 2026-27 -- the formula, metro vs non-metro rules, the new city list, claim process, documentation, and FAQs

What is HRA and What is HRA Exemption?

• HRA (House Rent Allowance) is an allowance paid by employers to salaried employees to help them meet the cost of rented residential accommodation
• HRA is a regular component of the salary structure and typically ranges from 40% to 60% of the basic salary depending on the employer's compensation policy
• HRA Allowance is the total amount paid by the employer -- it is taxable by default
• HRA Exemption is the portion of HRA that is shielded from income tax under Section 10(13A) -- reducing the employee's taxable income
• The portion of HRA that does not qualify for exemption is added back to taxable salary and taxed at the applicable slab rate
• Self-employed individuals and business owners are not eligible for HRA exemption under Section 10(13A) -- they must use Section 80GG if they wish to claim a deduction for rent paid

Eligibility Conditions to Claim HRA Exemption

• Must be a salaried individual -- HRA exemption under Section 10(13A) is exclusively for salaried employees receiving HRA as part of their compensation package
• HRA must be a specific component of the salary structure -- if HRA is not separately stated in the salary slip and Form 16, Section 10(13A) cannot be claimed
• Must actually pay rent for residential accommodation -- living rent-free (own house, parents' house without formal rent) disqualifies the claim
• Must reside in rented accommodation -- the employee must actually be a tenant and not own the property where they reside
• Must have chosen the old tax regime -- HRA exemption is completely unavailable under the new tax regime; the entire HRA is taxable under new regime
• Can claim HRA and home loan deduction simultaneously -- if the property on home loan is in a different city from where the employee works and resides
• Can pay rent to parents and claim HRA -- valid rent agreement required, and parents must show the rent received as income in their own income tax return

The HRA Exemption Formula -- The Least of Three

• The HRA exemption under Section 10(13A) is the LOWEST of the following three amounts:
• Limit 1: Actual HRA received from the employer during the year
• Limit 2: 50% of salary (Basic + Dearness Allowance + Commission as a fixed percentage of turnover) -- for metro cities | OR 40% of salary -- for non-metro cities
• Limit 3: Actual rent paid during the year MINUS 10% of salary (Basic + DA + Commission)
• Salary for HRA calculation means: Basic Salary + Dearness Allowance + Commission as a fixed percentage of turnover -- NOT total CTC or gross salary
• Whichever of the three limits is the lowest -- that is the HRA exemption. The remaining HRA above this limit is fully taxable at the applicable slab rate

Metro and Non-Metro City Classification -- New Rules from April 1, 2026

City Classification	Cities Included	HRA Exemption Limit	Effective From
Original Metro Cities	Delhi, Mumbai, Kolkata, Chennai	50% of Basic + DA	Since 1961
New Metro Cities (2026)	Bengaluru, Pune, Hyderabad, Ahmedabad	50% of Basic + DA	April 1, 2026
Non-Metro Cities	All other cities and towns in India	40% of Basic + DA	Since 1961

• The expansion of the 50% metro city list to include Bengaluru, Pune, Hyderabad and Ahmedabad is the most significant HRA change in FY 2026-27
• Employees residing in Bengaluru, Pune, Hyderabad or Ahmedabad can now claim 50% of salary as the HRA limit -- up from 40% previously -- potentially saving thousands in tax annually
• All other cities and towns in India -- including Surat, Jaipur, Lucknow, Indore, Bhopal, Chandigarh, Kochi -- continue to be classified as non-metro with a 40% salary limit

HRA Exemption Calculation with Examples -- FY 2026-27

Parameter	Metro City Example (Mumbai)	Non-Metro Example (Pune -- Now Metro)	Non-Metro Example (Nagpur)
Basic + DA (Monthly)	Rs. 50,000	Rs. 40,000	Rs. 35,000
HRA Received (Monthly)	Rs. 20,000	Rs. 16,000	Rs. 12,000
Rent Paid (Monthly)	Rs. 25,000	Rs. 18,000	Rs. 15,000
Limit 1: Actual HRA	Rs. 20,000	Rs. 16,000	Rs. 12,000
Limit 2: 50%/50%/40% of Salary	Rs. 25,000 (50%)	Rs. 20,000 (50% -- new metro)	Rs. 14,000 (40%)
Limit 3: Rent - 10% of Salary	Rs. 20,000	Rs. 14,000	Rs. 11,500
HRA Exemption (Least of 3)	Rs. 20,000	Rs. 14,000	Rs. 11,500
Taxable HRA (Monthly)	Rs. Nil (fully exempt)	Rs. 2,000	Rs. 500
Annual Tax Saved (30% slab)	Rs. 72,000	Rs. 50,400	Rs. 41,400

• Key takeaway from examples: An employee in a 30% tax bracket working in Mumbai can save up to Rs. 72,000 per year in taxes purely through HRA exemption -- with zero additional investment required
• Pune example shows the benefit of the new metro classification -- previously calculated at 40%, now at 50%, the HRA exemption increases from Rs. 11,000 to Rs. 14,000 monthly -- saving an additional Rs. 10,800 per year in a 30% slab
• The 10% of salary threshold in Limit 3 acts as a floor -- only rent paid above 10% of salary qualifies for the exemption. Employees paying very low rent may find their exemption capped by this limit

New HRA Rules from April 1, 2026 -- What Changed

• Four new metro cities added to the 50% HRA exemption list: Bengaluru, Pune, Hyderabad and Ahmedabad -- effective April 1, 2026 under the Income Tax Rules, 2026
• Mandatory disclosure of landlord-tenant relationship: The new Income Tax Rules 2026 make it compulsory to disclose the relationship between the taxpayer and the landlord when claiming HRA exemption -- specifically when the landlord is a family member
• The 50% city list now covers 8 cities: Delhi, Mumbai, Chennai, Kolkata (old metros) + Bengaluru, Pune, Hyderabad, Ahmedabad (new metros from April 2026)
• Old Tax Regime continues to be required: Nothing has changed about the regime eligibility condition -- HRA remains exclusively an old tax regime benefit
• Income Tax Act, 2025 replaces the 1961 Act from April 1, 2026 -- Section 10(13A) provision is carried over with no structural change; only the city classification is expanded

No HRA from Employer? Claim Section 80GG Instead

• If HRA is not a component of your salary -- or if you are self-employed -- you can claim rent deduction under Section 80GG of the Income Tax Act
• Section 80GG conditions: You must not have received HRA at any point during the year | You or your spouse must not own any residential property in the city where you currently reside and work | You must actually be paying rent for accommodation
• Section 80GG deduction limit -- lowest of the following three: Rs. 5,000 per month (Rs. 60,000 per year) | 25% of adjusted total income for the year | Rent paid minus 10% of adjusted total income
• Section 80GG is significantly less generous than Section 10(13A) HRA exemption -- the Rs. 5,000 per month cap is a hard ceiling regardless of actual rent paid
• Cannot claim both Section 10(13A) and Section 80GG simultaneously -- if HRA is received from employer, 80GG is not available for the same period

Can You Claim Both HRA and Home Loan Deduction?

• Yes -- claiming HRA exemption under Section 10(13A) and home loan interest deduction under Section 24(b) simultaneously is permitted under specific conditions
• Condition 1: The property purchased with the home loan must be in a different city from where the employee is currently working and residing on rent
• Condition 2: The employee must be genuinely residing in rented accommodation -- not in the property for which the home loan has been taken
• Condition 3: Both claims must be under the old tax regime -- neither HRA nor home loan deductions are available under the new tax regime
• Common scenario: Employee works in Bengaluru on rent, has taken a home loan for a property in their home city which is rented out or under construction -- can claim both HRA for Bengaluru rent and home loan deduction for the other property

Documents Required to Claim HRA Exemption

• Rent receipts: Monthly rent receipts signed by the landlord -- ideally with revenue stamps for receipts above Rs. 5,000 per month
• Rent agreement: A registered or notarised rent agreement between the landlord and the employee showing rent amount and period
• PAN of landlord: Mandatory if annual rent paid exceeds Rs. 1,00,000 per financial year (i.e., more than Rs. 8,333 per month) -- without this, the HRA exemption claim may be disallowed
• Form 12BB: The declaration form submitted to the employer at the beginning of the year declaring HRA and rent details for TDS deduction adjustment
• Employer Form 16: HRA received and the exempt portion should be clearly reflected in Part B of Form 16 -- check this carefully before filing ITR
• Relationship disclosure: Under new 2026 rules, if paying rent to a family member (parent, sibling), the relationship must be disclosed
• Documents need not be submitted to the Income Tax Department while filing ITR -- but must be produced if any scrutiny notice or query is received

How to Claim HRA Exemption in Your Income Tax Return

• The exempt portion of HRA is reported under Schedule S (Salary) in ITR-1, ITR-2, or ITR-3 as applicable
• In ITR forms, the HRA exemption is declared under 'Allowances to the extent exempt under Section 10' -- specifically at the appropriate exempt allowances field
• If HRA is already captured in Form 16 with the correct exempt amount, it will auto-populate when using income tax portal pre-filled data
• If Form 16 does not capture the correct HRA exemption, calculate the exempt amount manually using the least-of-three formula and enter it in the ITR
• File ITR before the due date -- HRA exemption claimed in a return filed after the due date (belated return) is allowed, but the deduction benefit may be lower due to interest on tax payable
• Do not lose out -- many salaried employees skip claiming HRA exemption in the ITR if it was not submitted to the employer. You can always claim the correct exempt amount in your ITR regardless of what TDS was deducted

FAQs -- HRA Exemption 2026

Q1. What is HRA exemption under Section 10(13A)?

• Section 10(13A) of the Income Tax Act exempts a portion of House Rent Allowance from tax for salaried employees who reside in rented accommodation
• The exempt amount is the lowest of: actual HRA received | 50% of salary for metros or 40% for non-metros | rent paid minus 10% of salary
• Available only under the old tax regime -- new tax regime offers no HRA exemption

Q2. Which cities are considered metro for HRA exemption from April 2026?

• Original 4 metros: Delhi, Mumbai, Chennai, Kolkata -- 50% of salary HRA limit since 1961
• New metros from April 1, 2026: Bengaluru, Pune, Hyderabad, Ahmedabad -- upgraded to 50% limit
• All remaining cities: Non-metro -- 40% of salary limit

Q3. Can I claim HRA if I pay rent to my parents?

• Yes -- rent paid to parents is eligible for HRA exemption
• A valid rent agreement between you and your parents is essential
• Rent must actually be paid via bank transfer -- cash payments may attract scrutiny
• Your parents must declare the rental income in their own income tax return
• You cannot own the property jointly -- if the property is co-owned by you, you cannot pay rent to yourself

Q4. What is the difference between HRA under Section 10(13A) and Section 80GG?

• Section 10(13A): For salaried employees who receive HRA from employer -- no upper cap on exemption -- dependent on actual salary and rent
• Section 80GG: For salaried employees who do NOT receive HRA, and for self-employed individuals -- capped at Rs. 5,000 per month (Rs. 60,000 per year)
• Cannot claim both in the same year -- once HRA is received, Section 80GG is unavailable for that period
• Section 10(13A) is generally far more beneficial for metro city employees than 80GG

Q5. Can I claim both HRA exemption and home loan interest deduction?

• Yes -- both can be claimed simultaneously under the old tax regime
• Condition: The home loan property must be in a different city from where you work and pay rent
• If you own a property in the same city where you work, HRA exemption is generally not available -- the logic being you should live in your own property
• If the home-loan property is under construction or genuinely unavailable for self-occupation, some exemption may be available -- consult a CA for your specific situation

Q6. Is PAN of landlord mandatory for HRA claim?

• Yes -- if annual rent exceeds Rs. 1,00,000 (Rs. 8,333+ per month), furnishing the landlord's PAN is mandatory
• Submit the landlord's PAN in Form 12BB to your employer for TDS adjustment
• If the landlord refuses to provide PAN, note this in writing and attempt to obtain Form 60 from the landlord
• Without landlord's PAN, the employer may not process the HRA exemption -- you can still claim it in the ITR but must be prepared to justify it if questioned

Q7. What if my employer has not shown the correct HRA exemption in Form 16?

• You can still claim the correct HRA exemption in your Income Tax Return (ITR) independently
• Calculate the exempt amount using the least-of-three formula and enter it under exempt allowances in your ITR
• Keep all documentation -- rent receipts, rent agreement, landlord PAN -- to substantiate your claim
• Any excess TDS deducted due to the employer's error will be reflected as a refund in your ITR

Q8. Should I choose old regime or new regime if I pay high rent?

• High-rent city employees (metros, new metros) should calculate total deductions before deciding
• If your HRA exemption alone exceeds Rs. 1 to 1.5 lakh per year, the old regime is likely more beneficial
• Rule of thumb: If combined deductions (HRA + 80C + 80D + home loan interest) exceed Rs. 3.5 to 4 lakh, old regime typically delivers lower tax
• Run both calculations for your exact salary and deduction profile before April 1 or before informing your employer
• Once you inform your employer about the regime choice for TDS, you are generally locked in for that financial year

Conclusion

• HRA exemption remains one of the most powerful and accessible tax-saving tools for salaried employees in India
• The expansion of metro city status to Bengaluru, Pune, Hyderabad and Ahmedabad from April 1, 2026 brings meaningful additional relief for millions of tech and business professionals
• The formula is simple -- lowest of actual HRA, 50% or 40% of salary, and rent minus 10% of salary -- but requires careful application for each individual's salary structure
• Claim HRA exemption even if your employer has not processed it correctly -- the ITR gives you the opportunity to assert the full exempt amount
• Maintain all documentation -- rent receipts, rent agreement, landlord's PAN -- to substantiate your claim in case of any queries from the Income Tax Department

If you are in the new tax regime, HRA is fully taxable -- evaluate whether switching to the old regime to claim HRA makes financial sense for your specific income and deduction profile