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Calculate your House Rent Allowance (HRA) tax exemption under the Income-tax Act, 2025 and Income-tax Rules, 2026. Officially notified by the CBDT on March 20, 2026 (Notification No. G.S.R. 198(E), effective April 1, 2026), the rules expand the 50% basic salary exemption ceiling from 4 traditional metros to 8 major cities by adding Bengaluru, Pune, Hyderabad, and Ahmedabad. Calculate your tax-free HRA, taxable portion, and tax savings under the Old Tax Regime.
The notified 8-city 50% HRA exemption rule
Under previous rules, only Mumbai, Delhi, Kolkata, and Chennai qualified for the 50% HRA exemption rate. The Income-tax Rules, 2026 (Notification No. G.S.R. 198(E)) expanded this list to 8 cities by including Bengaluru, Pune, Hyderabad, and Ahmedabad. Employees residing in these 8 cities calculate their HRA ceiling as 50% of (Basic Salary + DA), while all other non-metro cities remain at 40%.
The 3-limit HRA exemption formula
HRA exemption under Section 10(13A) of the Income-tax Act, 2025 is calculated as the minimum of three amounts: (1) Actual HRA received from employer, (2) 50% of (Basic + DA) for 8 notified metro cities or 40% for others, and (3) Rent paid minus 10% of (Basic + DA). The lowest of these three amounts is completely exempt from income tax.
Old regime only, and Form 124 compliance
HRA exemption is strictly restricted to the Old Tax Regime under the Income-tax Act, 2025. Taxpayers opting for the New Tax Regime (Section 115BAC) cannot claim HRA exemption. Under updated 2026 rules (Form 124 replacing Form 12BB), disclosing the landlord's PAN AND relationship to the landlord is mandatory if annual rent exceeds ₹1,00,000.
What the numbers actually mean for you
Four new cities, one overdue correction
For decades the 50% tier covered only Mumbai, Delhi, Kolkata, and Chennai, a list frozen while Bengaluru rents overtook Kolkata's and Hyderabad grew into a tech capital. A software engineer paying Koramangala rents was capped at 40% of basic while a Chennai counterpart with cheaper rent enjoyed 50%. G.S.R. 198(E) fixes the map for FY 2026-27 by notifying Bengaluru, Pune, Hyderabad, and Ahmedabad into the top tier.
Who actually gains: renters whose 50%-of-basic line was the BINDING limit, typically people with high basic salaries relative to their HRA and rent. If your exemption is pinned by the rent-minus-10% rule or by the HRA you receive, the city upgrade changes nothing this year, run your own three numbers before celebrating, that is precisely what the calculator's breakdown shows.
The old-versus-new regime question eats this whole calculator
HRA exemption exists only in the old regime. The new regime taxes your full HRA but compensates with lower slab rates and the ₹75,000 standard deduction, and since it became the default, choosing to claim HRA means actively opting out. The break-even is personal: a big exemption like Ananya's ₹2,40,000 usually justifies the old regime once combined with 80C investments and home-loan interest; a small exemption rarely does.
The mistake to avoid is optimising one deduction at a time. Compare TOTAL tax under both regimes with all your deductions loaded, not just HRA, salaried employees can switch their choice each year at filing, so last year's answer is not binding, but mid-year payroll declarations set your TDS, and a December regime rethink means months of wrong withholding to unwind at filing.
Paperwork that decides whether the exemption survives scrutiny
Above ₹1,00,000 of annual rent, the FY 2026-27 rules (Form 124, replacing Form 12BB) require the landlord's PAN and a declaration of your relationship with the landlord, the second item aimed squarely at rent paid to parents. Paying rent to family is legal, but it needs the full apparatus: a rent agreement, actual bank transfers, and the parent declaring the income in their return. Cash 'rent' reconstructed each March is the pattern assessing officers now catch by matching your claim against the landlord's filings.
Keep the boring records: agreement, monthly transfer trail, rent receipts. Employers disallow HRA at the TDS stage when Form 124 is incomplete, which converts a legitimate exemption into a refund claim you must fight for later at filing time instead of money that never left your salary. A ten-minute folder check each April, before the employer's investment-proof deadline, is the entire cost of avoiding that fight, and it is the cheapest tax planning most salaried tenants will do all year.
And if your employer pays no HRA at all, this calculator is the wrong tool but the story is not over: Section 80GG allows a smaller rent deduction (capped at ₹60,000 a year) for old-regime taxpayers without HRA, worth knowing before assuming rent gives you nothing at tax time.
How the HRA exemption math works
Your tax-free HRA is the LOWEST of three numbers: the HRA your employer actually pays, 50% of basic salary plus DA (40% outside the notified cities), and rent paid minus 10% of basic plus DA. Whichever limit is smallest wins, and for most renters it is the third one.
What changed for FY 2026-27: Notification G.S.R. 198(E) of 20 March 2026 expanded the 50% metro tier from the four legacy metros to eight cities, adding Bengaluru, Pune, Hyderabad, and Ahmedabad, the cities where rents actually exploded over the past decade. The calculator applies the correct tier, runs the three-way minimum, and prices the saving at your old-regime slab.
Calculation Steps:
- Enter annual basic salary, DA, HRA received, and rent paid; pick your city tier and tax regime.
- Limit 1 is the HRA your employer pays; you can never exempt more than you receive.
- Limit 2 is 50% of (basic + DA) in the 8 notified cities, 40% elsewhere, the line the 2026 notification moved.
- Limit 3 is rent minus 10% of (basic + DA), the 'you must feel some rent pain first' rule.
- The minimum of the three is exempt; the rest of your HRA is taxed as salary, and the saving is the exemption times your slab rate. Under the new regime the answer is simply zero.
Worked example
Ananya earns ₹6,00,000 basic in Bengaluru, receives ₹2,40,000 of HRA, and pays ₹3,00,000 rent for a flat in HSR Layout.
Limit 1: ₹2,40,000 received. Limit 2: 50% of basic = ₹3,00,000, the new 8-city tier; last year Bengaluru was a '40% city' and this line would have been ₹2,40,000. Limit 3: ₹3,00,000 - ₹60,000 = ₹2,40,000.
Exempt HRA: ₹2,40,000, her entire allowance is tax-free under the old regime.
Her gross salary is ₹8,40,000 (basic plus HRA). With the exemption and the ₹50,000 standard deduction, taxable income lands at ₹5,50,000 and the old-regime bill at ₹23,400 with cess; without the exemption, taxable income would be ₹7,90,000 and the bill ₹73,320. The exemption is worth ₹49,920 a year to her.
The notification did not change HER minimum this year, limits 1 and 3 still bind at ₹2,40,000, but it gives her headroom: any future rent or HRA increase now works against a ₹3,00,000 ceiling instead of ₹2,40,000.
Input definitions
Review the glossary of terms used in the calculation model below. Click on highlighted links to read more in-depth definitions in our financial glossary:
| Parameter | Definition & Context |
|---|---|
| Annual Basic Salary | Basic only, not CTC. Special allowances and bonuses stay out of the HRA formula. |
| Annual Dearness Allowance | Added to basic for both percentage limits; mostly relevant to government and PSU pay structures. |
| Annual HRA Received | The allowance line on your salary structure, the hard ceiling on any exemption. |
| Annual Rent Paid | Actual rent with documentation. Above ₹1,00,000 a year, the landlord's PAN goes on the form. |
| City Category | The 8 notified cities take 50% of basic+DA; everywhere else takes 40%. |
| Tax Regime | HRA exemption exists only in the old regime; Section 115BAC's new regime disallows it entirely. |
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