HRA Exemption Calculator — Section 10(13A) & Rule 2A for FY 2025-26

How HRA Exemption Works Under Section 10(13A)

Section 10(13A) of the Income Tax Act 1961 read with Rule 2A of the Income Tax Rules grants a tax exemption on House Rent Allowance to salaried employees who genuinely pay rent for residential accommodation. The exemption is calculated using a strict three-condition formula — the lowest of the three values is your tax-free HRA. Anything beyond is added to taxable salary. Patron's Chartered Accountants apply this calculation in line with the audit standards prescribed by the Institute of Chartered Accountants of India (ICAI).

The Three-Condition Formula

The lowest value among these three becomes your HRA exemption. The "binding constraint" — the condition that produces the lowest value — varies by salary structure. For most metro residents with high rent and modest HRA, condition three (rent minus 10% of salary) is the binding constraint. For employees whose HRA is generously structured, condition one or two often binds.

Definition of "Salary" for Rule 2A

Critically, "salary" for HRA calculation is not your gross salary. It is restricted to: Basic Salary + Dearness Allowance (only the portion forming part of retirement benefits) + commission as a fixed percentage of turnover. It excludes bonus, performance-linked pay, conveyance, special allowance, LTA, and overtime. Using the wrong base inflates the exemption and creates reassessment risk.

Metro vs Non-Metro — The 4-City and 8-City Rules

Whether you live in a metro or non-metro city directly determines whether condition two of the formula uses 50% or 40% of your salary. The Income Tax Department's metro list was unchanged for over two decades until Budget 2025 and the subsequent Income Tax Rules 2026 expanded it, with confirming announcements via PIB.

For FY 2025-26 (AY 2026-27) — Old 4-Metro Rule

For ITR filing for FY 2025-26 — the return you are filing in 2026 with deadline 31 July 2026 — only four cities are metros under Section 10(13A):

• Delhi (including New Delhi)
• Mumbai
• Kolkata
• Chennai

Every other city — including Bengaluru, Pune, Hyderabad, Ahmedabad, Gurgaon, Noida, Surat, Jaipur — is non-metro for FY 2025-26 and qualifies only for the 40% cap.

From FY 2026-27 — New 8-Metro Rule

Under the Income Tax Rules 2026 notified alongside the Income Tax Act 2025, four additional cities join the metro list effective 1 April 2026 for income earned during Tax Year 2026-27 onwards:

• Bengaluru
• Hyderabad
• Pune
• Ahmedabad

Combined with the original four, eight cities now enjoy the 50% cap. This is a long-overdue alignment with rental cost reality in India's tech and business hubs. Notably absent from the new list: Gurgaon, Noida, and Surat — these remain non-metro despite high rentals.

Worked Examples — Three Common Scenarios

The binding constraint changes the answer dramatically. These three examples illustrate the most common patterns we see in practice at Patron Accounting.

Example 1 — Metro Resident, Modest Rent (Condition 3 binds)

Mumbai-based software engineer; Basic+DA ₹6,00,000/yr; HRA received ₹3,00,000/yr; Rent paid ₹2,40,000/yr.

Condition 3 binds because rent is too low relative to salary.

Example 2 — Metro Resident, High Rent (Condition 2 binds)

Delhi-based bank manager; Basic+DA ₹8,00,000/yr; HRA received ₹4,00,000/yr; Rent paid ₹6,00,000/yr.

Conditions 1 and 2 tie at ₹4,00,000 because employer matched HRA to the regulatory cap. Condition 3 doesn't bind because high rent comfortably exceeds 10% of salary.

Example 3 — Bengaluru: Where the FY 2026-27 Metro Upgrade Actually Helps

Bengaluru-based consultant; Basic+DA ₹10,00,000/yr; HRA received ₹6,00,000/yr; Rent paid ₹6,00,000/yr. Compare FY 2025-26 vs FY 2026-27:

Under FY 2025-26 rules, condition 2 (40% of salary) is the binding constraint at ₹4,00,000. Under FY 2026-27 rules with the metro upgrade, condition 2 rises to ₹5,00,000 and condition 3 becomes binding instead — yielding ₹1,00,000 of additional exemption. At a 30% marginal slab plus 4% cess, that translates to roughly ₹31,200 in additional tax savings annually.

HRA Under Old vs New Tax Regime

The single most important rule about HRA is this: HRA exemption is available only under the old tax regime. If you opt for the new tax regime under Section 115BAC, the entire HRA you receive is added to your taxable salary. Section 10(13A) is one of the deductions explicitly disabled in the new regime.

Decision Framework

Choose the old regime if your HRA exemption (plus other deductions like 80C, 80D, home loan interest, LTA) reduces your tax more than the new regime's lower slab rates. As a thumb rule:

• Metro renters paying ₹25,000+/month typically save more under old regime due to HRA alone.
• Non-metro renters or low-rent payers often find new regime more attractive — especially after Budget 2025 raised the rebate threshold to ₹12 lakh.
• Salaried with home loan and ₹1.5L 80C usage — old regime usually wins.
• Salaried under ₹12 lakh income with no major deductions — new regime wins via Section 87A rebate.

Run both regimes annually using the Income Tax Calculator and Section 87A Rebate Calculator before locking in your regime declaration with HR.

Documentation & Compliance Requirements

HRA is one of the most commonly disallowed exemptions during scrutiny because employees frequently lack supporting documents. Keep this checklist current and store records for at least six assessment years.

Documents to Maintain

• Rent agreement — preferably registered if rent exceeds ₹15,000/month or duration exceeds 11 months. Unregistered agreements are accepted but offer weaker evidence.
• Monthly rent receipts signed by the landlord. Above ₹5,000/month, affix revenue stamps. Receipts must show period, address, amount, and landlord's signature.
• Bank transfer evidence — UPI/NEFT/RTGS records. Cash payments above ₹5,000/month are flagged for scrutiny under Section 269ST.
• Landlord's PAN — mandatory if annual rent exceeds ₹1,00,000. Without PAN, a written declaration with name and address is the minimum evidence.
• Form 12BB / Form 124 — investment declaration submitted to your employer, downloadable from the Income Tax e-filing portal. From April 2026, Form 12BB is replaced by Form 124 under the Income Tax Rules 2026.
• TDS by tenant — if monthly rent exceeds ₹50,000, the tenant (you) must deduct TDS at 5% under Section 194IB and deposit it with PAN of landlord. Annual filing through Form 26QC.

If Employer Did Not Allow HRA in Form 16

If you did not submit declarations on time and your employer issued Form 16 (Form 130 from FY 2026-27) without HRA exemption, you can still claim it directly in your ITR. Compute the exemption using this tool, reduce your taxable salary by the exempt amount, and file the ITR under old regime. Be ready to support the claim if a Section 143(1) intimation arrives — see our AIS Reconciliation Tool for context.

Frequently Asked Questions About HRA Exemption