HRA exemption formula
Under the old tax regime, the tax-free part of your HRA is the lowest of these three amounts:
- The actual HRA you received from your employer.
- Rent paid minus 10% of salary (basic + DA).
- 50% of salary if you live in one of the 8 notified cities, otherwise 40%.
The rest of your HRA is added to your taxable salary.
What changed in 2026
The Income-tax Rules, 2026, which apply from 1 April 2026 (tax year 2026-27), raised the number of cities that get the 50% limit from four to eight. Employees renting in Bengaluru, Hyderabad, Pune and Ahmedabad can now get a bigger exemption. The new rules also ask you to state your relationship with the landlord when you claim HRA.
Example
Basic + DA ₹50,000 a month, HRA ₹20,000, rent ₹18,000, living in Pune:
- Actual HRA: ₹2,40,000
- Rent − 10% of salary: ₹2,16,000 − ₹60,000 = ₹1,56,000
- 50% of salary: ₹3,00,000
The exemption is ₹1,56,000 and ₹84,000 is taxable. Before April 2026 Pune used 40%, but the result is the same here because the rent rule was already the lowest.
Proof you need
Keep rent receipts or a rent agreement and bank transfer records. You can create receipts for every month with our rent receipt generator. Then compare regimes with the income tax calculator.