The Three-Formula Minimum Rule
HRA exemption under Section 10(13A) is the smallest of three values. Whichever is least is the only amount that escapes income tax. The rest of your HRA is taxable as regular salary.
| Formula | Calculation |
|---|---|
| A — Actual HRA | HRA received during the year |
| B — Excess rent | Annual rent paid − 10% of basic salary |
| C — Metro / Non-metro % | 50% of basic (metro) or 40% of basic (non-metro) |
| Exemption | MIN(A, B, C) |
Worked example — Bengaluru, basic ₹6L, HRA ₹2.4L, rent ₹25k/mo
- A — Actual HRA: ₹2,40,000
- B — Excess rent: (25,000 × 12) − (10% × 6,00,000) = 3,00,000 − 60,000 = ₹2,40,000
- C — 40% of basic (Bengaluru is non-metro): ₹2,40,000
- Exemption = min(2.4L, 2.4L, 2.4L) = ₹2,40,000 tax-free
In this case all three formulas coincide — HRA is fully exempt. Change any input (lower rent, lower basic, metro flag) and watch which formula becomes the binding constraint.
What counts as "Metro" for HRA
Only four cities: Mumbai, Delhi, Kolkata, Chennai. Bengaluru / Hyderabad / Pune / Ahmedabad / Gurgaon are non-metro for HRA purposes, even though they're major cities economically. The metro flag bumps the formula C ceiling from 40% to 50% of basic.
Documentation you need (employer + ITR)
- Rent receipts for each month (revenue stamp required above ₹5,000/month).
- Landlord PAN if annual rent > ₹1,00,000. No PAN = no exemption above ₹1L threshold.
- Rent agreement (helps in scrutiny).
- Bank transfer evidence to the landlord (strongly recommended).
Common mistakes that destroy your HRA claim
- Claiming HRA while paying parents rent without a paper trail. Parent must declare the rent as income in their ITR; bank-transfer is mandatory in scrutiny.
- Putting Bengaluru / Hyderabad in the metro bucket. Section 10(13A) is strict — only 4 cities are metro.
- Forgetting the 10% deduction in formula B. Excess rent = annual rent − 10% of basic, NOT annual rent.
- Claiming on the new tax regime. HRA exemption applies only to the OLD regime. Calculate both regimes before locking your declaration.
HRA + home loan together — can you?
Yes, in three situations:
- Your owned home is in a different city than your work — you pay rent in city A, claim home loan on city B's property.
- The owned property is rented out (you claim home loan interest against rental income via Section 24).
- The owned property is under construction and you currently live elsewhere on rent.
You cannot claim both on the same self-occupied property in the same city you're living in.