HRA Calculation for FY 2025-26: Step-by-Step with Examples
House Rent Allowance is exempt under section 10(13A) of the Income-tax Act read with Rule 2A, but only to the extent of the least of three amounts - and only in the old tax regime. This page walks through the exact computation for FY 2025-26 (AY 2026-27) returns, with worked examples for metro and non-metro cities and the city-list change that applies from FY 2026-27.
Step 1: Work out "salary" for the formula
- Include: basic salary, dearness allowance if it forms part of retirement benefits, and commission earned as a fixed percentage of turnover.
- Exclude: bonus, special allowance, LTA, perquisites and employer PF - the formula does not run on CTC.
- Use the salary for the period for which rent was actually paid and the accommodation occupied.
Step 2: Apply the least-of-three test
| Limb | Amount |
|---|---|
| 1. Actual HRA received for the period | As per salary slips / Form 16 |
| 2. Rent paid minus 10% of salary | If rent is below 10% of salary, this is nil and no exemption is available |
| 3. City limit on salary | 50% of salary - Delhi, Mumbai, Kolkata, Chennai (FY 2025-26); 40% - all other cities |
The lowest of the three is exempt; the balance HRA is taxed as salary. If any input changes during the year - basic pay revision, rent hike, change of city - split the year into periods and compute each period separately. You can verify your numbers instantly with the All India ITR HRA calculator.
Step 3: Apply the regime check
The exemption is allowed only in the old tax regime. In the default new regime the full HRA is taxable, so taxpayers with large rent outgo should compare both options on the old vs new tax regime guide before filing.
Worked examples for FY 2025-26
Example 1: Delhi (metro, 50%)
Basic Rs. 50,000/month (Rs. 6,00,000/year), HRA Rs. 25,000/month (Rs. 3,00,000), rent Rs. 20,000/month (Rs. 2,40,000). Limbs: (1) Rs. 3,00,000; (2) Rs. 2,40,000 - Rs. 60,000 = Rs. 1,80,000; (3) 50% of Rs. 6,00,000 = Rs. 3,00,000. Exempt: Rs. 1,80,000. Taxable HRA: Rs. 1,20,000.
Example 2: Bengaluru (40% this year)
Basic Rs. 9,60,000/year, HRA Rs. 4,80,000, rent Rs. 45,000/month (Rs. 5,40,000). Limbs: (1) Rs. 4,80,000; (2) Rs. 5,40,000 - Rs. 96,000 = Rs. 4,44,000; (3) 40% = Rs. 3,84,000. Exempt for FY 2025-26: Rs. 3,84,000. From FY 2026-27 Bengaluru becomes a 50% city, lifting limb 3 to Rs. 4,80,000 and the exemption to Rs. 4,44,000 - Rs. 60,000 more.
Example 3: Rent paid to parents (Chennai)
Basic Rs. 4,80,000/year, HRA Rs. 1,92,000, rent Rs. 15,000/month (Rs. 1,80,000) paid to parents by bank transfer. Limbs: (1) Rs. 1,92,000; (2) Rs. 1,80,000 - Rs. 48,000 = Rs. 1,32,000; (3) 50% = Rs. 2,40,000. Exempt: Rs. 1,32,000 - valid only if the arrangement is genuine and the parents declare the rent in their own ITR.
Documents and conditions checklist
- Old tax regime selected in the ITR (or via Form 10-IEA for business income).
- Rent receipts and, ideally, a registered or signed rent agreement.
- Landlord's PAN reported to the employer where annual rent exceeds Rs. 1,00,000.
- TDS under section 194-IB where monthly rent exceeds Rs. 50,000.
- Bank-transfer trail for rent, especially for rent paid to relatives. You cannot pay rent to yourself or to a spouse in a routine arrangement.
- If you missed declaring HRA to your employer, you can still claim the exemption while filing the ITR - keep the proofs ready in case of verification.
If you receive no HRA at all, the exemption route does not apply, but a deduction under section 80GG may - see the HRA exemption rules and 80GG guide. For the concept, eligibility and paperwork in detail, see the House Rent Allowance overview.
How to claim the computed exemption in your ITR
- Check Form 16 Part B: if you declared rent to your employer, the exempt HRA already appears under "exempt allowances u/s 10".
- If payroll missed it, recompute the least-of-three amount yourself and report the exempt portion under section 10(13A) in the "Exempt allowances" field of the salary schedule in ITR-1 or ITR-2 for AY 2026-27.
- Make sure the old regime is selected in the return - the utility will otherwise ignore the exemption.
- Reconcile the resulting salary figure with Form 26AS and AIS so the lower taxable salary does not look like under-reporting.
- Keep receipts, the agreement and the payment trail for at least four years in case of e-verification queries.
Common mistakes
- Computing the limbs on CTC or gross salary. Only basic + qualifying DA + turnover commission count.
- Using 50% for Bengaluru, Pune, Hyderabad or Ahmedabad in this year's return. For FY 2025-26 these are 40% cities; the 8-city 50% list applies from FY 2026-27 onwards.
- Claiming HRA in the new regime. The ITR utility will tax the full HRA; the exemption needs the old regime.
- Ignoring mid-year changes. A rent hike or salary revision means period-wise computation, not a single annual formula.
- Rent below 10% of salary. Limb 2 becomes nil and the entire HRA is taxable - check before opting for the old regime just for HRA.
- No PAN of landlord above Rs. 1 lakh rent. Payroll will disallow the exemption, and a mismatch with Form 16 can trigger a notice.
Frequently asked questions
How is HRA exemption calculated for FY 2025-26?
It is the least of actual HRA received, rent paid minus 10% of salary, and 50% (four metros) or 40% (other cities) of salary, computed on basic + qualifying DA + turnover commission, under the old regime only.
What counts as salary in the formula?
Basic salary, DA forming part of retirement benefits and fixed-percentage turnover commission. Bonus, perquisites and other allowances are excluded.
Is Bengaluru a metro for HRA in FY 2025-26?
No - it remains a 40% city for this year's filing. Bengaluru, Hyderabad, Pune and Ahmedabad join the 50% list only from FY 2026-27 (tax year 2026-27).
Can I claim HRA in the new tax regime?
No. Section 10(13A) exemption is an old-regime benefit; under the new regime the full HRA is taxable.
Monthly or annual calculation?
Period-wise. Whenever salary, HRA, rent or city changes, compute each stable period separately and total the exempt amounts.
Do I need my landlord's PAN?
Yes, where annual rent exceeds Rs. 1,00,000, the PAN must be reported to your employer; keep receipts and the agreement in every case.
Let an expert compute it for you
All India ITR's experts run the period-wise HRA computation, test it against the new regime, and file the return with the regime that actually saves you more.
Related current ITR guides
More AY 2026-27 tax guides
Save tax: Home loan benefits · NPS (80CCD) · Donations (80G) · Education loan (80E) · Interest income (80TTA/80TTB) · Form 15G/15H · Capital gains exemptions (54/54F/54EC)
Investors and traders: F&O and intraday tax · ESOP and RSU tax · Share buyback tax · Foreign income and Schedule FA · Gift tax (56(2)(x)) · HUF taxation
Calculators and tools: Income tax calculator · Advance tax calculator · 80C tax-saving calculator · NPS calculator · Gratuity calculator · EPF calculator · Crypto tax calculator · HRA calculator
Filing and compliance: Section 87A rebate · Marginal relief · Form 10-IEA · PAN-Aadhaar link · AIS and TIS · ITR-U updated return · Discard ITR and condonation · TDS on rent and property · Income Tax Act 2025
Sources reviewed
- Income Tax Department: official House Rent Allowance calculator
- Income Tax Department: Salaried individuals for AY 2026-27 - exemptions and regimes
- PIB, Ministry of Finance: Income-tax Act, 2025 and Income-tax Rules, 2026 in force from 1 April 2026
The computation above reflects section 10(13A) and Rule 2A as applicable to FY 2025-26 (AY 2026-27) returns. The expanded 50% city list applies from tax year 2026-27 under the Income-tax Act, 2025 framework - confirm the position in the notified rules before applying it to payroll declarations.
