The HRA formula
If you receive House Rent Allowance and pay rent for where you live, part of your HRA can be tax-free under the old regime. The exempt amount is the lowest of three figures:
1. Actual HRA received
2. Rent paid − 10% of (basic + DA)
3. 50% of (basic + DA) in the eight listed cities, 40% elsewhereEight cities now get the 50% limit
From tax year 2026-27, the Income-tax Rules 2026 extend the 50% limit beyond Delhi, Mumbai, Kolkata and Chennai to Bengaluru, Hyderabad, Pune and Ahmedabad. If you live in one of the new four, your exemption may rise noticeably this year. For returns covering earlier years, the old four-city list still applies.
Worked example
Rules and paperwork
- Old regime only: the new regime gives no HRA exemption, so compare both on the income tax calculator.
- Rent receipts: employers usually ask for receipts; if yearly rent exceeds ₹1 lakh, you must give the landlord's PAN.
- Paying rent to parents: allowed if they own the home and you actually pay; they must declare it as income.
- No HRA in your salary? If you're self-employed or your salary has no HRA component, a separate deduction for rent paid may apply under the old regime, with its own limits.
- Owning a home elsewhere: you can claim HRA for rent in the city where you work, even while claiming home loan benefits on a house in another city.
Frequently asked questions
Which cities get the 50% HRA exemption in 2026-27?
Delhi, Mumbai, Kolkata, Chennai, Bengaluru, Hyderabad, Pune and Ahmedabad. All other cities get 40%.
Can I claim HRA under the new tax regime?
No. HRA exemption is available only under the old regime.
Can I claim HRA and home loan benefits together?
Yes, if you live in a rented home in one place while the house you own is elsewhere, or is let out.
Official references: Income Tax Department