For AY 2026-27, HRA exemption under the old tax regime is the lowest of three amounts: the HRA received, rent paid minus 10% of the relevant salary, and the applicable 40% or 50% salary limit. The HRA entry in a payslip is therefore not automatically the exempt amount. This explainer applies to income for FY 2025-26 and does not set out city classifications for later tax periods.
The Income Tax Department's salary income guide sets out the Section 10(13A) and Rule 2A calculation. For this purpose, salary means basic pay, dearness allowance if it forms part of retirement benefits, and turnover based commission. Using total cost to company as the salary input can produce the wrong result.
HRA exemption calculation formula for AY 2026-27
Write the formula as: exempt HRA = minimum of [actual HRA, actual rent minus 0.10 multiplied by salary, applicable city percentage multiplied by salary]. Keep every input for the same period. Mixing one month's rent with a full year's salary is not a valid comparison.
| Component | Amount to compare |
|---|---|
| Allowance | Actual HRA received |
| Rent test | Rent paid less 10% of relevant salary |
| Salary limit for this assessment year | 50% for Delhi, Mumbai, Kolkata or Chennai; 40% elsewhere |
The department's guide also makes clear that HRA is fully taxable where an employee lives in their own house or pays no rent. An HRA component cannot create an exemption by itself. The calculation needs a qualifying rental situation as well as the allowance.
HRA calculation example with Rs 50,000 monthly salary
Consider a purely illustrative employee renting in Delhi throughout FY 2025-26. Assume relevant salary of Rs 50,000 a month, HRA of Rs 20,000 a month and actual rent of Rs 18,000 a month. Assume these figures stay unchanged for all 12 months. They are inputs chosen for the example, not market rents or a salary benchmark.
The annual salary input is Rs 6,00,000. Annual HRA is Rs 2,40,000 and annual rent is Rs 2,16,000. The rent test is Rs 2,16,000 minus Rs 60,000, which equals Rs 1,56,000. The 50% salary limit is Rs 3,00,000. Comparing Rs 2,40,000, Rs 1,56,000 and Rs 3,00,000 gives an exempt amount of Rs 1,56,000.
Taxable HRA in that example is the allowance received minus the exemption: Rs 2,40,000 minus Rs 1,56,000 = Rs 84,000. That is an income component, not the employee's final tax bill. A tax bill cannot be calculated from HRA alone because the rest of the return and the applicable regime also matter.
Changing only the salary percentage in this example to 40% would give a third comparison amount of Rs 2,40,000. The minimum would still be Rs 1,56,000. This shows why a higher percentage limit does not necessarily increase exemption: a different part of the formula may already be the lowest amount.
Can HRA exemption be claimed in the new tax regime?
The department's old and new regime FAQ says HRA exemption is not available in the new regime. It should not be added to an old regime deduction total without first establishing which regime applies. This article explains the calculation and does not recommend a regime.
For records, the official ITR-2 FAQ refers to rent paid receipts for calculating HRA where they were not submitted to the employer. Check the figures against the actual rental period and payroll records before using the example as a model. Official pages were read on 1 November 2026.
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