It is not just the rent you pay
If you rent a home and receive House Rent Allowance (HRA) in your salary, you can shield part of it from tax under the Old Regime. The myth to bust: your entire rent is not tax-free. The law uses a least-of-three rule — your exemption is the smallest of three amounts.
The metro vs non-metro number
HRA exemption uses 50% of basic salary for metros and 40% for non-metros as one of the three caps (Source: Section 10(13A) and Rule 2A, Income Tax Rules).
| City type | Cities | Salary % cap |
|---|---|---|
| Metro | Delhi, Mumbai, Chennai, Kolkata | 50% of basic |
| Non-metro | Bengaluru, Pune, Hyderabad, others | 40% of basic |
The least-of-three rule
Your tax-free HRA is the lowest of:
- Actual HRA received from your employer.
- Rent paid minus 10% of basic salary (basic + DA).
- 50% of basic (metro) or 40% of basic (non-metro).
A worked example
- Basic salary: ₹50,000/month (₹6,00,000/year)
- HRA received: ₹20,000/month (₹2,40,000/year)
- Rent in Bengaluru (non-metro): ₹15,000/month (₹1,80,000/year)
Applying the rule:
- Actual HRA: ₹2,40,000
- Rent minus 10% of basic: ₹1,80,000 − ₹60,000 = ₹1,20,000
- 40% of basic: ₹2,40,000
The lowest is ₹1,20,000 — that is your tax-free HRA. The remaining ₹1,20,000 of HRA becomes taxable salary.
Metro vs non-metro, clearly
Only Delhi, Mumbai, Chennai, and Kolkata are "metros" for HRA. Even with high rent in Bengaluru or Gurgaon, you use the 40% figure.
What you should do
- Note your basic (and DA) from Form 16 — HRA maths uses basic, not gross.
- Run all three figures and pick the smallest.
- Keep rent receipts and proof of payment.
Common mistake
Assuming your whole rent or whole HRA is exempt. The least-of-three rule almost always exempts less, and over-claiming can trigger scrutiny.
How LastMinute ITR helps
The maths gets messy if rent or salary changed mid-year. LastMinute ITR runs the least-of-three formula instantly, shows the exempt figure in your deductions, and compares old vs new regime, since HRA only helps in the old regime. You file and e-verify on incometax.gov.in.