HRA Exemption Rules 2026 — Salaried, Contract & Self-Employed

The HRA Formula: 3 Rules Explained

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

HRA exemption under Section 10(13A) of the Income Tax Act is the minimum of three calculations. For a detailed walkthrough with more examples, see our HRA Calculator guide:

1. Rule 1: Actual HRA received from your employer
2. Rule 2: Rent paid minus 10% of salary (basic + DA)
3. Rule 3: 50% of salary if you live in a metro city (Delhi, Mumbai, Kolkata, Chennai), or 40% for non-metro cities

"Salary" for HRA purposes means basic salary + dearness allowance (DA). It does not include special allowances, bonuses, or other components. The calculation is done on a monthly basis, not annually.

Worked Example: Salaried Employee in Bangalore

Rahul works in Bangalore with the following salary structure:

Applying the 3 rules (monthly):

HRA exemption = minimum of the three = ₹19,000/month = ₹2,28,000/year.

Note that Bangalore is not a metro city for HRA purposes, so Rule 3 uses the 40% rate. If Rahul worked in Mumbai, the Rule 3 amount would be ₹30,000 (50% of ₹60,000), and his exemption would be ₹24,000/month instead of ₹19,000.

HRA by Employment Type

1. Salaried Employees (Section 10(13A))

If you are a regular salaried employee with HRA as a component of your salary, you are eligible for Section 10(13A) exemption. This is the most common and beneficial route:

• HRA component is part of your CTC and salary structure
• Submit rent receipts and landlord PAN (if rent > ₹1L/year) to your employer during the proof submission window (usually January–February)
• Employer adjusts TDS accordingly, so you get the tax benefit in your monthly salary itself
• Can be claimed only under the Old Tax Regime — see our old vs new comparison to check which regime saves more

Optimization tip: If your company allows salary restructuring, increase your HRA component (and correspondingly decrease other taxable components). A higher HRA received means a higher potential exemption under Rule 1.

2. Contract Workers (Section 80GG)

If you work on a contract basis and your agreement does not include an HRA component, you cannot claim Section 10(13A). Instead, claim under Section 80GG:

The ₹60,000 annual cap under 80GG is significantly lower than what salaried employees can claim under 10(13A). For contract workers paying ₹20,000+ rent per month, this cap is a real limitation.

3. Self-Employed Individuals (Section 80GG)

Self-employed professionals, freelancers, and business owners who do not receive any salary (and therefore no HRA) can also claim Section 80GG. The same rules apply as for contract workers:

• Maximum deduction: ₹5,000/month (₹60,000/year)
• Must not own a residential house in the city where you live and work
• Must file Form 10BA declaring that you do not own a house in that city
• Available under Old Tax Regime only

Important: If you are self-employed and also receive some salary income with HRA, you claim 10(13A) on the salaried portion. 80GG and 10(13A) cannot be claimed simultaneously.

Work From Home: Can You Still Claim HRA?

Does working from home affect your HRA eligibility?

Yes. HRA exemption requires that you pay rent for your accommodation. It does not require you to physically travel to an office. If you are working from home but paying rent for your apartment, you are fully eligible for HRA exemption. If you are evaluating whether to continue renting or buy a home, our Rent vs Buy Calculator factors in the HRA tax benefit alongside ownership costs — also see the rent vs buy guide for a full analysis.

Scenario 1: WFH from your rented apartment. You continue paying rent as before. HRA exemption applies normally. No change required.

Scenario 2: WFH from parents' home. If you moved to your parents' house, you can pay rent to your parents and claim HRA, provided:

• Your parents own the property (registered in their name)
• You actually transfer rent to them via bank (maintain a trail)
• Your parents declare the rental income in their ITR
• The rent amount is reasonable (market rate for a similar property)

This is a well-established and legal tax planning strategy. If your parents are in a lower tax bracket (or below the taxable threshold), the family saves tax overall. You cannot, however, pay rent to your spouse for HRA purposes.

Documents Required for HRA Claims

Pro tip: Always pay rent via bank transfer (UPI, NEFT, or cheque). Cash payments with manually created receipts are more likely to be questioned during assessment. If your landlord insists on cash, at least maintain rent receipts with their signature, address, and PAN.

Paying Rent to Parents: Tax Planning Strategy

How does paying rent to parents save your family tax?

This is one of the most effective legal tax planning strategies available to salaried individuals. Here is how it works:

1. Your parents own a house (registered property)
2. You pay rent to them via bank transfer each month
3. You claim HRA exemption on this rent (Section 10(13A))
4. Your parents declare the rental income in their ITR
5. If your parents are in a lower bracket (or below taxable limit), the family saves tax

Example: You are in the 30% bracket and pay ₹20,000/month rent to parents. Your HRA exemption saves you approximately ₹72,000 in taxes per year. Your parents receive ₹2,40,000 rental income. If they are in the 0% bracket (income below ₹5 lakh with rebate), they pay zero tax on this. Net family saving: ₹72,000/year.

Your parents can also claim 30% standard deduction on the rental income under Section 24(a), further reducing their taxable rental income to ₹1,68,000.

Common HRA Mistakes in ITR Filing

1. Wrong Metro Classification

Only Delhi, Mumbai, Kolkata, and Chennai are metro cities for HRA. Bangalore, Hyderabad, Pune, Ahmedabad, and all other cities are non-metro. Using 50% instead of 40% for these cities results in excess exemption claims.

2. Not Claiming HRA at All

Many employees forget to submit rent receipts during the employer's proof submission window. They can still claim HRA exemption while filing their ITR directly. This is often the single largest unclaimed deduction.

3. Claiming HRA Under the New Tax Regime

HRA exemption is available only under the Old Tax Regime. If you opted for the New Regime (which is the default from FY 2023–24), HRA exemption is not available. Many taxpayers claim it anyway and receive an intimation under Section 143(1) for mismatch. Always verify your regime choice first using the Tax Regime Comparator.

4. Claiming HRA + Home Loan Interest for the Same City

You can claim both HRA and home loan interest deduction (Section 24b), but only if the rented property and owned property are in different cities. If you own a house in Mumbai and also claim HRA for rent in Mumbai, it will be flagged. The logic: why would you rent if you own a house in the same city?

5. Missing Landlord PAN

If your annual rent exceeds ₹1,00,000, providing landlord's PAN is mandatory. Without it, your employer may refuse to give HRA exemption in TDS. You can still claim it in your ITR, but it may attract scrutiny.