HRA Exemption Calculation 2026-27: Formula and City Examples

Your tax-free HRA is the lowest of three amounts: the HRA you actually receive, the rent you pay minus 10% of your basic salary, and 50% of basic salary if you live in one of eight listed cities (40% anywhere else). From Tax Year 2026-27 (FY 2026-27) the 50% list includes Bengaluru, Hyderabad, Pune and Ahmedabad as well as Delhi, Mumbai, Kolkata and Chennai. The exemption is available only in the old tax regime.

The HRA calculator does the three-way comparison for you and shows each limit, so you can see which one is holding your exemption down. Every figure below comes from that calculator's code.

The HRA exemption formula

For each month you live in rented housing and receive HRA, compare:

1. Actual HRA received from your employer.
2. Rent paid minus 10% of salary. The first 10% of your salary spent on rent is treated as your own cost and gets no relief.
3. 50% of salary in Delhi, Mumbai, Kolkata, Chennai, Bengaluru, Hyderabad, Pune and Ahmedabad, or 40% of salary in any other city.

The smallest of the three is exempt. The rest of your HRA is added to your taxable salary.

Quick example. Basic ₹50,000 a month, HRA ₹25,000 a month, rent ₹20,000 a month, in a 50% city. Over 12 months: HRA received ₹3,00,000; rent minus 10% of basic is ₹2,40,000 − ₹60,000 = ₹1,80,000; 50% of basic is ₹3,00,000. Exempt HRA: ₹1,80,000. Taxable HRA: ₹1,20,000. Here the rent limit is the binding one, which is the most common case.

What "salary" means in the formula

"Salary" is not your gross pay. For HRA it means:

• Basic salary, plus
• Dearness allowance (DA), if your terms of employment count it for retirement benefits, plus
• Commission fixed as a percentage of turnover, if you get one.

HRA itself, special allowance, bonus and other allowances are left out. Use only the salary for the months you were renting. A larger basic raises both the 10% deduction in limit 2 and the cap in limit 3, which is why the same rent can give two colleagues different exemptions.

The 2026-27 change: 50% in eight cities

Under the Income-tax Rules, 2026 (Rule 279), which apply from 1 April 2026, the 50% rate covers eight cities. For FY 2025-26 and earlier years, only Delhi, Mumbai, Kolkata and Chennai got 50%; Bengaluru, Hyderabad, Pune and Ahmedabad were at 40% along with everywhere else.

The list names cities, not regions. Gurugram and Noida, for example, are separate cities outside Delhi, so they stay at 40%.

Bengaluru example: FY 2025-26 vs Tax Year 2026-27

Arjun works in Bengaluru with a basic salary of ₹60,000 a month and HRA of ₹30,000 a month. He pays ₹35,000 a month in rent.

The new rule gives Arjun ₹60,000 more tax-free HRA. If his income after deductions is in the old regime's 30% slab, that saves 30% plus 4% cess: ₹60,000 × 31.2% = ₹18,720.

Checking that with the income tax calculator: on a gross salary of ₹18 lakh, with ₹1.5 lakh in 80C, ₹25,000 in 80D and ₹2,500 of professional tax, his old-regime tax falls from ₹2,05,764 (exempt HRA ₹2,88,000) to ₹1,87,044 (exempt HRA ₹3,48,000). The difference is exactly ₹18,720.

Before celebrating, compare with the new regime. On the same ₹18 lakh, new-regime tax is ₹1,50,800, so even with the bigger exemption Arjun pays ₹36,244 more in the old regime. Our old vs new regime break-even table shows how much in total deductions you need before HRA tips the balance.

How your rent changes the exemption

This table keeps basic at ₹50,000 a month and HRA at ₹25,000 a month and changes only the rent. Figures are for a full year.

Three patterns are worth knowing:

• Rent at or below 10% of basic gives nothing. At ₹5,000 rent against a ₹50,000 basic, limit 2 is zero.
• In the middle, each extra ₹1 of rent adds ₹1 of exemption, because the rent limit is the smallest.
• The exemption tops out when rent reaches HRA plus 10% of basic (here ₹30,000) in a listed city, or earlier in other cities, where 40% of basic (₹2,40,000) becomes the cap. Paying more rent beyond that saves no more tax.

When you rent for only part of the year

The comparison is made for the months you actually rented. The calculator has two fields for this: months you paid rent and months you received HRA.

Sneha works in Pune with a basic of ₹40,000 a month and HRA of ₹20,000 a month, paid all year. She lived with her family until September and started renting a flat at ₹22,000 a month from October, so she paid rent for 6 months.

1. HRA for the 6 rented months: ₹1,20,000.
2. Rent minus 10% of basic for those months: ₹1,32,000 − ₹24,000 = ₹1,08,000.
3. 50% of basic for those months (Pune is now a 50% city): ₹1,20,000.
4. Exempt HRA: ₹1,08,000.
5. HRA for the 6 months without rent (₹1,20,000) is fully taxable, so her total taxable HRA is ₹2,40,000 − ₹1,08,000 = ₹1,32,000.

If you change cities or your salary changes during the year, work out each stretch separately and add the results; the calculator handles one set of figures at a time.

Paying rent to your parents

The law asks for two things: the house you live in must not be owned by you, and you must actually pay rent for it. It does not bar paying rent to a parent who owns the house. To make the claim stand up:

• The house should be owned by your parent, not by you.
• Pay the rent for real, ideally by bank transfer every month, and keep a simple rent agreement.
• Your parent must show the rent as income in their own return. This only saves tax for the family if your parent's tax rate is lower than yours.
• Disclose the relationship. Rule 205 of the Income-tax Rules, 2026 asks for your relationship with the landlord, if any, in the statement you give your employer.

Landlord PAN and the proofs you need

If you choose the old regime with your employer, you claim HRA on Form 124, which replaced Form 12BB from Tax Year 2026-27. Your employer will usually ask for rent receipts or the rent agreement.

When the rent you pay in the year is more than ₹1 lakh (above about ₹8,333 a month), you must give the landlord's name, address and PAN. If the landlord has no PAN, the Income Tax Department's guidance allows a declaration from the landlord to that effect, with their name and address. If you have more than one landlord in the year, give details for each.

Missed the employer deadline? You can still claim the exemption in your income tax return if you file under the old regime, as long as you keep the proofs.

HRA in the new tax regime

There is none. The new regime under section 202 of the Income-tax Act, 2025 taxes HRA in full, along with 80C, 80D and most other deductions. If you stay in the new regime, your rent receipts make no difference to your tax.

That is why HRA is usually the deciding factor in the regime choice. The examples above show that even a large HRA exemption may not be enough: in the Bengaluru case, the new regime still wins by ₹36,244. Run both regimes with your real numbers, and use the in-hand salary calculator to see what the difference means each month.

If your salary has no HRA at all

Self-employed people and employees whose pay has no HRA component may claim a separate deduction for rent in the old regime (section 134 of the new Act, the old section 80GG). It is the least of rent paid minus 10% of total income, ₹5,000 a month, or 25% of total income, and it is not available if you, your spouse or your minor child own a house in the city where you live or work.

This guide is general information based on the rules as of October 2026, not tax advice for your situation.

Frequently asked questions

How is HRA calculated for Bangalore in 2026-27?

Bengaluru now uses the 50% rule. Your exempt HRA is the least of HRA received, rent minus 10% of basic, and 50% of basic. For FY 2025-26 (the return filed in 2026), Bengaluru was still at 40%.

Can I claim HRA exemption in the new tax regime?

No. HRA is fully taxable in the new regime. You need to file under the old regime to claim it.

Is HRA exemption calculated on basic or gross salary?

On basic salary plus DA that counts for retirement benefits, plus any commission fixed as a percentage of turnover. Not on gross salary or CTC.

Is landlord PAN mandatory for HRA?

Only when the rent you pay in the year is more than ₹1 lakh. Below that, rent receipts are enough for most employers.

Do I get HRA exemption if I live in my own house?

No. The exemption is only for a house you do not own and for which you actually pay rent. HRA received while living in your own home is fully taxable.

Which cities get 50% HRA exemption from 2026-27?

Delhi, Mumbai, Kolkata, Chennai, Bengaluru, Hyderabad, Pune and Ahmedabad. Every other city uses 40%. The detailed rule change is explained in what Tax Year 2026-27 means.

Sources: Income-tax Act, 2025 (section 134, section 202 and Schedule III, Sl. 11); Income-tax Rules, 2026 (Rules 205 and 279); Income Tax Department guidance on Form 124. Rules as of October 2026.