HRA exemption: the least-of-three rule
Salary, HRA received and rent paid in: the exempt and taxable split out, with all three limbs of the rule shown so you can see which one binds you.
Applies under the old tax regime only: the new (default) regime has no HRA exemption. Verify your regime choice before relying on this.
Your inputs (monthly)
The three limbs, computed
Monthly figures shown; the exemption is assessed on the year's actuals, so mid-year rent or salary changes compute period by period. Rent to a landlord above ₹1 lakh a year needs their PAN on record.
How the least-of-three rule works
Your exempt HRA is the least of three amounts: (1) the HRA you actually received; (2) rent paid minus 10% of salary — salary meaning basic + DA; and (3) 50% of salary in the four metros (Delhi, Mumbai, Kolkata, Chennai) or 40% elsewhere. Whatever HRA remains above the exempt amount is taxable as salary. The rule binds differently for different people: high rent against modest HRA makes limb 1 bind; modest rent makes limb 2 the constraint; high salaries in non-metros often hit limb 3. The calculator shows all three precisely so you can see which limb is yours, and what would have to change to move it.
The caveat that outranks everything: HRA exemption exists under the old tax regime only. Under the new default regime there is no HRA exemption (the trade was lower slab rates for fewer exemptions) so this calculation matters only if you have chosen, or are choosing, the old regime. That comparison is personal arithmetic involving all your deductions; do it before assuming the exemption, and verify current regime rules at incometaxindia.gov.in.
A worked example
Basic + DA ₹40,000, HRA received ₹16,000, rent ₹18,000, metro city. Limb 1: ₹16,000. Limb 2: ₹18,000 − ₹4,000 = ₹14,000. Limb 3: 50% of ₹40,000 = ₹20,000. The least is ₹14,000 exempt; the remaining ₹2,000 of HRA is taxable. Notice the lever: every extra ₹100 of rent adds ₹100 to limb 2 until it crosses another limb, which is why the same HRA produces different exemptions in different flats.
Illustrative, old-regime arithmetic; your declarations and proofs govern the actual assessment.
In a payroll system, this computation runs from employee declarations automatically — TDS projections update when rent declarations change. That is part of what PeopleDeck's payroll engine does on every run.
Frequently asked questions
How is HRA exemption calculated?
As the least of three amounts: HRA actually received; rent paid minus 10% of salary (basic + DA); and 50% of salary in the four metros (Delhi, Mumbai, Kolkata, Chennai) or 40% elsewhere. Whatever HRA exceeds the exempt amount is taxable as salary.
Does HRA exemption apply under the new tax regime?
No — HRA exemption is an old-regime benefit. Under the new default regime the exemption does not exist; the trade was lower slab rates for fewer exemptions. Compare both regimes on your full deductions before assuming this calculation helps you.
Which cities count as metro for the 50% limb?
Delhi, Mumbai, Kolkata and Chennai: the classic four. Bengaluru, Hyderabad, Pune and other large cities compute at 40% for this rule, whatever their rents suggest.
Do I need my landlord's PAN?
If annual rent exceeds ₹1 lakh, yes: the landlord's PAN goes on your declaration. Keep rent receipts and the agreement regardless; payroll needs them as proof for the exemption to survive assessment.
Can I claim HRA while paying rent to a parent?
It can be legitimate if the arrangement is real — actual payments, their PAN, rent declared in their income. Sham arrangements are a well-litigated audit target; treat this as a question for a tax professional, not a loophole.
Declarations to payslips, automatically.
HRA, TDS projections and Form 16 data, computed by PeopleDeck on every run.
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