If you are trying to use an HRA Exemption calculator but don't know where to start, we're here to help. Read on to know all about HRA exemption and its limit.
Maximum Limit for HRA Exemption
Your HRA that escapes tax is the lowest of these four figures:
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Actual HRA received from your employer.
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Rent paid – 10 % of basic salary + DA.
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50 % of basic salary + DA if you live in a metro (Mumbai, Delhi, Chennai, Kolkata).
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40 % of basic salary + DA if you live in any other city.
Whatever amount is least is fully tax‑free; any balance HRA is taxable.
What Is HRA and Why Does It Matter?
House Rent Allowance (HRA) is the salary component employers pay to help you meet rental costs. When you actually live in rented accommodation, a portion of that HRA can be shielded from tax, trimming your yearly tax outgo.
Detailed HRA Exemption Rules
| Condition | Metro (4 cities) | Non‑metro |
|---|---|---|
| Salary percentage cap | 50 % of basic + DA | 40 % of basic + DA |
| Rent adjustment | Rent – 10 % of basic + DA must be positive to claim any exemption | |
| Proofs needed | Rent receipts; landlord PAN if annual rent > ₹1 lakh |
Only full‑time salaried employees qualify; freelancers and the self‑employed must claim rent as a business expense instead.
Living with Parents?
You can still claim HRA—enter into a genuine rental agreement, transfer rent to their bank account, and keep receipts.
How to Calculate Your Exemption
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Compute all four figures listed in the quick answer.
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Identify the smallest.
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That amount is your tax‑free HRA.
Too many numbers? Use Vakilsearch’s free HRA Exemption Calculator for an instant answer.
Claiming the Exemption—Checklist
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Reside in rented accommodation and receive HRA.
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Keep rent receipts for each month.
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Collect landlord’s PAN if annual rent > ₹1 lakh.
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Submit proofs and a simple self‑declaration to HR or while e‑filing.
Benefits Beyond Tax Savings
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Lowers taxable income without extra investments.
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Lets you support parents if you pay them rent.
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Encourages transparent rental documentation, aiding credit applications.
Conclusion
Understanding the ceiling on HRA exemption—the lowest of the four rule‑of‑thumb figures—helps you structure salary negotiations and plan taxes smartly. Always store rent proofs and revisit your calculation whenever salary, rent, or city changes.
