HRA Exemption —
Least of 3, Old Regime Only
How house rent allowance is exempted under Section 10(13A), the metro vs non-metro rule, a worked example, and the other salary exemptions — LTA, gratuity, leave encashment and EPF — that shape your take-home tax.
HRA exemption under Section 10(13A) is the least of three amounts: (1) actual HRA received, (2) rent paid minus 10% of basic salary + DA, and (3) 50% of basic+DA for metro cities (Delhi, Mumbai, Chennai, Kolkata) or 40% for non-metro. The lowest figure is exempt; the balance HRA is taxed as salary. HRA is available only under the old tax regime — the default new regime does not allow it.
How HRA Exemption Is Calculated
Under Rule 2A of the Income-tax Rules, you compute all three amounts and take the smallest. Do it monthly if salary or rent changes during the year, then total the exempt figures.
Try our HRA calculator to run your own numbers, or see the worked example below.
HRA Example — Metro vs Non-Metro
Non-metro · Rs 10L CTC
Metro · Rs 15L CTC
If you opt for the default new tax regime, the entire HRA is taxable — Section 10(13A) does not apply. Only the old regime lets you exempt HRA. Compare both before you file: a large metro rent can tilt the maths towards the old regime, while modest rent often favours the new regime's lower rates and Rs 75,000 standard deduction.
Metro Cities, Rent Receipts & Landlord PAN
| Rule | Applies to | Position |
|---|---|---|
| Metro — 50% of basic+DA | Delhi, Mumbai, Chennai, Kolkata | 50% |
| Non-metro — 40% of basic+DA | Bengaluru, Hyderabad, Pune, all others | 40% |
| Rent receipts | Rent above Rs 3,000/month | Required |
| Landlord PAN | Annual rent above Rs 1,00,000 | Mandatory |
| HRA on own house | Self-occupied, no rent paid | Not allowed |
Bengaluru and Hyderabad are non-metro for HRA even though they are major cities. Rent paid to a family member is allowed only if it is genuine, with proof of payment.
If you pay rent but your salary has no HRA component (or you are self-employed), you can claim a deduction under Section 80GG — least of Rs 5,000/month, 25% of total income, or rent minus 10% of income. Like HRA, it is available only under the old regime.
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Get ITR Filing Help →Other Salary Exemptions & Retirement Benefits
HRA is one of several salary exemptions. Most are available only under the old regime; the retirement exemptions below apply in both regimes. Standard deduction is Rs 75,000 under the new regime and Rs 50,000 under the old.
| Benefit | Section | Exempt limit / basis | Regime |
|---|---|---|---|
| HRA | 10(13A) | Least of the 3-part formula | Old only |
| LTA (domestic travel) | 10(5) | 2 journeys in a 4-year block | Old only |
| Gratuity (non-govt) | 10(10) | Up to Rs 20,00,000 | Both |
| Leave encashment on retirement | 10(10AA) | Up to Rs 25,00,000 (non-govt) | Both |
| Retrenchment compensation | 10(10B) | Up to Rs 5,00,000 | Both |
| Family pension deduction | 57(iia) | 1/3 up to Rs 25,000 | Both |
Leave encashment limit for non-government employees was raised to Rs 25 lakh in 2023 (from Rs 3 lakh). Commuted pension is exempt u/s 10(10A).
Old regime — exemptions available
- HRA (10(13A)) & LTA (10(5)) allowed
- 80C, 80D, 80GG, 24(b) home-loan interest
- Standard deduction Rs 50,000
- Best when rent & deductions are high
New regime (default) — most gone
- No HRA, no LTA, no 80C
- Only 80CCD(2) employer NPS survives
- Standard deduction Rs 75,000
- 87A rebate up to Rs 12L taxable income
- Simpler — best with little rent
Rent-free or concessional accommodation, a company car and ESOPs are taxable perquisites valued under Rule 3. ESOPs are taxed at exercise on FMV minus the exercise price (eligible startups get a TDS deferral). These add to salary regardless of regime.
EPF, FD Interest & Other Income Rules
Employees' Provident Fund earns 8.25% for FY 2025-26. Employee and employer each contribute 12% of basic+DA. The interest is tax-free within limits, but high contributions and early withdrawals are taxed.
| Income / event | Tax position | Section / TDS |
|---|---|---|
| EPF interest on employee contribution > Rs 2.5L/yr | Interest taxable | 10(12) (Rs 5L if no employer PF) |
| Employer EPF+NPS+super > Rs 7.5L/yr | Excess taxable | Perquisite |
| EPF withdrawal before 5 yrs service | Taxable | TDS 192A @10% (20% no PAN) |
| EPF transfer on job change | Not taxable | — |
| Bank / FD interest | Slab | TDS 194A > Rs 50k (Rs 1L senior) |
| Dividend income | Slab | TDS 194 @10% > Rs 10,000 |
| Gift from non-relative > Rs 50k/yr | Taxable | 56(2)(x) |
VPF (voluntary extra employee PF) earns the same 8.25% and counts toward the Rs 2.5 lakh interest-tax threshold. 80TTA (Rs 10,000 savings interest) and 80TTB (Rs 50,000 for seniors) are old-regime only.
Old regime likely wins if
- You pay high rent in a metro and claim HRA
- You have 80C, 80D and home-loan interest
- You draw LTA and have large deductions overall
New regime likely wins if
- You pay little or no rent
- Your deductions are modest
- You prefer the higher Rs 75,000 standard deduction
Not sure which regime saves you more on salary?
Compare with the calculator →HRA Exemption & Salary Tax — FAQs
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