HRA Exemption Calculator: How HRA Works in the Old Tax Regime

House Rent Allowance, or HRA, can reduce taxable income when you choose the old tax regime and pay rent. But the full HRA amount shown in your salary structure is not always tax-free.

The exempt amount is calculated using a least-of-three formula.

HRA exemption formula

HRA exemption is the least of:

• Actual HRA received
• Rent paid minus 10% of salary
• 50% of salary for metro cities, or 40% of salary for non-metro cities

For HRA, salary generally means basic salary plus dearness allowance, where DA is applicable.

Metro vs non-metro city

For HRA exemption, metro generally refers to Delhi, Mumbai, Chennai, and Kolkata. If you live in one of these cities, the third limit is 50% of salary. For other cities, it is 40%.

This is why the same rent and same salary can produce different HRA exemptions depending on city type.

Example

Suppose your annual basic salary is Rs 5,40,000, annual HRA is Rs 2,16,000, and annual rent paid is Rs 3,00,000 in a metro city.

The three limits are:

• Actual HRA received: Rs 2,16,000
• Rent minus 10% of salary: Rs 2,46,000
• 50% of salary: Rs 2,70,000

The least amount is Rs 2,16,000, so estimated HRA exemption is Rs 2,16,000.

When HRA may not help

HRA exemption may be low or zero when rent is low compared with salary. If annual rent is less than or close to 10% of salary, the rent-minus-10% component can become zero.

HRA also generally does not help under the new tax regime because most exemptions and deductions are not available there.

What to keep ready

• Rent receipts
• Rental agreement, if available
• Landlord details
• Landlord PAN when required
• Salary structure showing basic and HRA

Bottom line

HRA exemption can make the old tax regime more attractive, especially if you pay meaningful rent. Use the HRA Exemption Calculator along with the India CTC calculator before deciding your tax regime.