HRA Exemption: The Least-of-Three Rule and the Metro List That Surprises People
Priya Sharma
· Corporate Legal & Compliance Counsel· 3 min read
House rent allowance is partly exempt, and almost nobody can state the rule correctly. It is the least of three figures, one of which depends on a statutory list of four cities that has nothing to do with how expensive a city actually is.
- ✓Exemption is the least of three amounts, computed monthly where circumstances change.
- ✓Metro means Delhi, Mumbai, Kolkata and Chennai only.
- ✓Landlord PAN is required where annual rent exceeds one lakh rupees.
- ✓HRA exemption is unavailable in the new regime.
The three limbs
The smallest of these is exempt; the balance of your HRA is taxable. Increasing the other two changes nothing until the smallest one moves.
- The actual HRA received from your employer.
- Rent paid, less ten per cent of basic salary including dearness allowance.
- Fifty per cent of basic for a metro, or forty per cent otherwise.
The metro list
For HRA purposes, metro means Delhi, Mumbai, Kolkata and Chennai. That is the entire list, and it is statutory rather than descriptive.
Bengaluru, Hyderabad, Pune, Gurugram and Noida all attract the forty per cent limb despite rents that frequently exceed the four listed cities. This is the single most common misunderstanding in HRA computation.
Documentation
Rent receipts are required, and where annual rent exceeds one lakh rupees you must report the landlord's PAN to your employer. Without it the exemption can be denied at assessment.
Paying rent to parents is permissible if the arrangement is genuine: they must own the property, the rent must actually be paid, and they must declare it as income from house property. Transfers by bank rather than cash make the arrangement far easier to defend.
Computed monthly, not annually
Where salary, rent or city changes during the year, the exemption is computed for each period separately rather than on annual totals. Moving from Pune to Mumbai mid-year means two computations with different city limbs.
Annualising across a change generally overstates or understates the exemption, and it is the kind of error that surfaces when Form 16 is reconciled against the return.
Frequently asked questions
### Is Bengaluru a metro for HRA?
No. For HRA purposes only Delhi, Mumbai, Kolkata and Chennai are metros, attracting the fifty per cent limb. Bengaluru, Hyderabad, Pune and Gurugram attract forty per cent, regardless of local rent levels.
### Can I claim HRA if I pay rent to my parents?
Yes, if the arrangement is genuine. Your parents must own the property, you must actually pay the rent — ideally by bank transfer — and they must declare it as income from house property in their own return.
### Can I claim HRA in the new tax regime?
No. The exemption under Section 10(13A) is unavailable in the new regime, where your entire house rent allowance is taxable. For high metro rents this is often the main reason the old regime still works out cheaper.
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Frequently Asked Questions
Is Bengaluru a metro for HRA?
No. For HRA purposes only Delhi, Mumbai, Kolkata and Chennai are metros, attracting the fifty per cent limb. Bengaluru, Hyderabad, Pune and Gurugram attract forty per cent, regardless of local rent levels.
Can I claim HRA if I pay rent to my parents?
Yes, if the arrangement is genuine. Your parents must own the property, you must actually pay the rent — ideally by bank transfer — and they must declare it as income from house property in their own return.
Can I claim HRA in the new tax regime?
No. The exemption under Section 10(13A) is unavailable in the new regime, where your entire house rent allowance is taxable. For high metro rents this is often the main reason the old regime still works out cheaper.
Priya Sharma
Corporate Legal & Compliance CounselSpecializing in commercial contract litigation, Section 138 NI Act recovery, commercial property leases, and MSMED Act compliance.