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How this is calculated +
Under Section 10(13A) read with Rule 2A, the HRA exemption equals the lowest of three figures, computed annually:
Test 1: Actual HRA received during the year
Test 2: 50% of (Basic + DA) if employee is in a metro city
40% of (Basic + DA) for non-metro cities
Test 3: (Annual rent paid) − 10% of (Basic + DA)
The four metro cities for HRA purposes are Mumbai, Delhi, Kolkata and Chennai. All other cities (including Bengaluru, Hyderabad, Pune, Ahmedabad) are non-metro for this purpose.
DA is included in the base only if it forms part of retirement benefits (per the employment terms).
Conditions: the employee must actually pay rent, must not own the residence they live in, and must be a salaried individual receiving HRA as part of CTC. The exemption is available only under the old tax regime.
Documentation: rent receipts are mandatory; if annual rent exceeds ₹1,00,000, the landlord’s PAN must be furnished. Rent paid by digital transfer to the landlord is the cleanest evidence trail.
Indicative only. The exemption is computed monthly where any input changes mid-year (rent, salary, posting). For the precise computation in your case — including PAN-of-landlord requirements, joint-tenancy, and HRA + Section 24 home-loan interest interaction — talk to us.