How is HRA Tax Exemption Calculated?
House Rent Allowance (HRA) is one of the most effective ways for salaried individuals to reduce their tax liability under the Old Tax Regime. The Income Tax Act provides a clear formula to calculate exactly how much of your HRA is exempt from tax.
The Three Golden Rules of HRA
Your HRA exemption is calculated as the minimum of the following three conditions:
- The actual HRA amount given to you by your employer.
- 50% of your Basic Salary if you reside in a Metro city (Delhi, Mumbai, Kolkata, Chennai), or 40% if you reside in a Non-Metro city.
- The actual rent you paid for the year minus 10% of your Basic Salary.
Our HRA Exemption Calculator computes all three rules dynamically and determines the lowest value, which is your completely tax-free HRA component. The remaining amount (if any) becomes part of your taxable income.