TAX EXEMPTION OLD REGIME ONLY

HRA Exemption in 8 Metro Cities

House Rent Allowance is exempt from tax only under Old Regime. If you pay rent and your salary includes HRA, you can claim exemption on the minimum of three amounts under Rule 2A.

What is HRA Exemption?

HRA (House Rent Allowance) is a component of your salary that your employer pays to cover rental accommodation costs. Under the Old Tax Regime, a portion of HRA is exempt from income tax if you actually pay rent for accommodation.

block NEW REGIME — NO HRA EXEMPTION

HRA exemption is not available under the New Regime (default from FY 2020-21). You must opt for Old Regime to claim this benefit.

To claim HRA exemption, you must meet all three conditions:

check_circle Salaried Employee

You must receive a salary (not business income). Self-employed individuals cannot claim HRA.

check_circle HRA in Salary

Your salary structure must include HRA as a component. If your employer doesn't provide HRA, you cannot claim exemption.

check_circle Actually Pay Rent

You must actually reside in rented accommodation and pay rent. Living in your own house does not qualify.

Rule 2A: The Three Limits

The HRA exemption is calculated as the minimum of three amounts. You cannot get exemption higher than any one of these:

OPTION 1

Actual HRA received

The HRA component your employer pays you.

OPTION 2

Rent paid − 10% of (Basic + DA)

Rent minus 10% of your basic salary plus dearness allowance.

OPTION 3

50% or 40% of (Basic + DA)

50% for metro cities, 40% for non-metro cities.

functions

Exemption = MIN(Option 1, Option 2, Option 3)

The exemption cannot exceed the actual HRA received. If rent is low, Option 2 may be zero or negative — you get no exemption.

check_circle Key Detail

Basic + DA is your basic salary plus dearness allowance (only DA forming part of retirement benefits). Special allowance, performance bonus, etc. are NOT included in the calculation.

8 Metro Cities (FY 2026-27)

check_circleVERIFIED

For FY 2026-27, 8 cities qualify as metros for the 50% Rule 2A calculation. This is an expansion from the original 4 metros that applied until FY 2025-26.

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Delhi 50% METRO

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Mumbai 50% METRO

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Chennai 50% METRO

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Kolkata 50% METRO

location_city starNEW REGIME DEFAULT

Bengaluru 50% METRO

location_city starNEW REGIME DEFAULT

Pune 50% METRO

location_city starNEW REGIME DEFAULT

Hyderabad 50% METRO

location_city starNEW REGIME DEFAULT

Ahmedabad 50% METRO

All other cities in India use the 40% rule for Option 3 in the HRA exemption calculation.

HRA Exemption Calculator

Enter your salary details to calculate your HRA exemption under Rule 2A.

Rent to Spouse Warning

warning HRA EXEMPTION DENIED

If you pay rent to your spouse (husband/wife), HRA exemption is denied. This is a common mistake that triggers scrutiny from the Income Tax Department.

The Income Tax Act explicitly disallows HRA exemption when rent is paid to a spouse. This is because a spouse is not considered an independent legal entity for rental purposes — the department views it as a transaction between two people sharing the same household.

close Rent to Spouse

HRA exemption DENIED. Even if you have a rental agreement and actual bank transfers, the exemption will be disallowed during assessment.

check_circle Rent to Parents

HRA exemption ALLOWED. You must have a rental agreement, pay rent via bank transfer, and declare it in Form 124 (see below).

check_circle Documentation Matters

Even for rent paid to parents, maintain: (1) registered rental agreement, (2) rent receipts, (3) bank transfer proof, (4) landlord's PAN if rent exceeds ₹1,00,000/year. Failure to provide these = exemption denied.

Form 124 Disclosure

info FROM APRIL 2026 — FORM 12BB REPLACED

From April 2026, Form 12BB is replaced by Form 124. The new form now requires family rent disclosure — if you pay rent to parents, siblings, or any family member, you must declare it explicitly.

Form 124 (previously Form 12BB) is the declaration you submit to your employer at the beginning of the financial year (or when there's a change) to claim tax-saving deductions including HRA exemption.

Field	Form 12BB (Old)	Form 124 (New)
Rent paid details	Yes	Yes
Landlord PAN	If rent > ₹1,00,000/yr	If rent > ₹1,00,000/yr
Family rent disclosure	Not required	Required — NEW
80C declaration	Yes	Yes
80D declaration	Yes	Yes

warning RENT TO PARENTS — DISCLOSE

If you pay rent to your parents, you must declare it in Form 124 from FY 2026-27. Non-disclosure is treated as misdeclaration and can lead to denial of exemption plus penalties.