Under the old regime, the exempt HRA is the least of: (1) actual HRA received, (2) rent paid minus 10% of salary, and (3) 50% of salary in Mumbai, Delhi, Kolkata, Chennai, Bengaluru, Hyderabad, Pune and Ahmedabad, or 40% elsewhere. "Salary" means basic plus DA (where it counts for retirement benefits). HRA is fully taxable under the new regime, which is the default.
How the three limits work
Each limit is calculated for the period you received HRA and paid rent, normally the year. Whichever is smallest is exempt; the rest of the HRA is added to taxable salary.
- Actual HRA is simply what the employer paid you as house rent allowance.
- Rent minus 10% of salary rewards people who pay a high rent relative to basic. If rent is less than 10% of salary, this limit is nil and nothing is exempt.
- 50% or 40% of salary depends on where you live, not where the employer is registered.
The Income-tax Rules, 2026, which took effect with the Income-tax Act, 2025 on 1 April 2026, extended the 50% rate from the four old metros to Bengaluru, Hyderabad, Pune and Ahmedabad. For FY 2025-26 and earlier, those four cities were at 40%.
Worked example: Pune, before and after the change
Neha lives in Pune. Basic plus DA ₹40,000 a month (₹4,80,000 a year), HRA ₹20,000 a month (₹2,40,000), rent ₹18,000 a month (₹2,16,000).
| Limit | Tax year 2026-27 (Pune at 50%) | FY 2025-26 (Pune at 40%) |
|---|---|---|
| 1. Actual HRA | ₹2,40,000 | ₹2,40,000 |
| 2. Rent − 10% of salary (₹2,16,000 − ₹48,000) | ₹1,68,000 | ₹1,68,000 |
| 3. Share of salary | ₹2,40,000 (50%) | ₹1,92,000 (40%) |
| Exempt HRA (least) | ₹1,68,000 | ₹1,68,000 |
| Taxable HRA | ₹72,000 | ₹72,000 |
Here the rent limit is the binding one, so the city change makes no difference. If Neha paid ₹25,000 a month, limit 2 becomes ₹2,52,000, and the exempt amount rises from ₹1,92,000 (40%) to ₹2,40,000 (50%), saving tax on ₹48,000 of income.
Old regime or new: does HRA tip the balance?
HRA is only one old-regime deduction. With the new regime's ₹12 lakh rebate and wider slabs, many salaried people pay less tax under the new regime even after losing HRA. Run your CTC through the salary calculator (new regime) and compare with the old-regime figure after HRA, section 80C and other deductions. Employees choose the regime with the employer for TDS each year.
- Keep rent receipts and the rent agreement; employers usually ask for them before the year-end TDS.
- Rent paid to a parent can qualify if the parent owns the house and declares the rent as income. Rent to a spouse is routinely questioned.
- If you receive no HRA (for example, self-employed), a separate old-regime deduction for rent may apply; this calculator covers salaried HRA only.
Collect declarations without chasing
FundRaksha HR calculates PF, ESI and PT for every employee automatically on each payroll run, so the challans, ECR and payslips agree without a spreadsheet. Employees can upload rent receipts and choose their regime in the app, and TDS adjusts on the next run. See the salary slip format for how HRA is shown.