HRA Exemption Calculator 2026: Formula, Rules & 50% Cities

HRA Exemption Formula for Tax Year 2026-27

Rule 279 provides that the HRA amount excluded from total income is the least of the following three figures:

1. actual HRA received for the relevant period;
2. actual rent paid for residential accommodation minus 10% of salary for that period; or
3. 50% of salary where the rented accommodation is in one of the eight specified cities, or 40% of salary at any other place.

If rent paid minus 10% of salary is negative, that limb does not create an exemption. The exemption also cannot exceed the HRA actually received.

HRA Exemption Calculator

Cities Eligible for 50% Salary Limit from 1 April 2026

Rule 279 expands the 50% HRA location list to eight cities:

Hyderabad, Pune, Ahmedabad and Bengaluru are therefore added to the four-city list used under the earlier Rule 2A framework.

What Does "Salary" Mean for Rule 279?

Rule 279 states that "salary" includes dearness allowance where it is provided for under the terms of employment, but excludes all other allowances and perquisites. The calculation must use salary due for the relevant period during which the rented accommodation was occupied.

HRA and the Default New Tax Regime

HRA exemption is not available where income is computed under the default new tax regime in Section 202. Section 202(2)(a)(i) specifically requires total income to be computed without the exemption in Schedule III, Table Sl. No. 11.

An eligible employee who wants to use the HRA exemption must therefore be in the tax regime under which that exemption is available, subject to the rules for exercising the option applicable to the taxpayer.

Form 124, Landlord PAN and HRA Evidence

From 1 April 2026, Rule 205 requires employees to furnish evidence or particulars of specified claims to the employer in Form No. 124 for salary-TDS purposes.

For an HRA claim, where aggregate rent paid during the tax year exceeds ₹1,00,000, the employee must furnish the landlord's:

• name;
• address;
• PAN; and
• relationship with the landlord, if any.

Employees should also retain the rent agreement, rent receipts and bank or electronic-payment evidence appropriate to the facts of the case.

Can Rent Be Paid to Parents?

Rent paid to a parent can support an HRA claim where the parent is genuinely the landlord, the employee actually occupies the premises as a tenant, rent is genuinely paid, and the arrangement is properly documented. The parent's rental income has its own tax consequences. Artificial or paper-only arrangements can be questioned.

Can Rent Be Paid to a Spouse?

A spouse-related claim requires particular care. The existence of a genuine landlord-tenant relationship, ownership, actual occupation, payment trail and surrounding circumstances all matter. Merely executing a rent agreement without a genuine rental arrangement is not sufficient.

Can HRA and Home-Loan Benefits Be Claimed Together?

They may coexist where the respective statutory conditions are independently satisfied. For example, an employee may own a house in one location but actually live in rented accommodation elsewhere for employment. HRA relates to the rented residence; housing-loan benefits relate to the owned property and their own statutory conditions.

Rent Deduction Where HRA Is Not Received: Section 134

The earlier page referred to Section 80GG for rent paid by an eligible individual who does not receive HRA. For periods governed by the Income-tax Act, 2025, the corresponding provision is Section 134 - deduction in respect of rents paid.

Under the familiar Section 80GG framework for earlier periods, the deduction was the least of rent paid minus 10% of adjusted total income, ₹5,000 per month, or 25% of adjusted total income, subject to the statutory ownership and other conditions. For a Tax Year governed by the 2025 Act, use Section 134 and the current prescribed rules/form applicable to that year.

HRA Calculation Example

Assume the following annual figures for the relevant period:

The three figures are:

For either location category in this example, the least relevant figure is ₹90,000. Therefore HRA exemption is ₹90,000 and taxable HRA is ₹30,000, provided the employee is using the tax regime under which HRA exemption is available.

Old Law and Current Law: Quick Reference

Important Points for Employees

• HRA exemption equals the least of the three Rule 279 amounts; it is not automatically the HRA received.
• The 50% salary ceiling now applies to eight specified cities.
• HRA exemption is unavailable under the default Section 202 regime.
• Use the Rule 279 salary figure, not gross salary or CTC automatically.
• Actual payment of residential rent must be genuine.
• Form 124 applies to employee claims furnished to the employer for salary-TDS purposes.
• Where annual rent exceeds ₹1,00,000, Rule 205 requires landlord name, address and PAN, plus relationship if any.
• An eligible person without HRA should examine Section 134 and Form 10BA rather than treating the employee HRA exemption as applicable.

Official References

Income Tax Department - Income-tax Act, 2025 and Income-tax Rules, 2026

CBDT - Notified Income-tax Rules, 2026

Income Tax Department - Section 202, Default New Tax Regime

Income Tax Department - FAQs and Guidance Notes on Forms under Income-tax Rules, 2026

Frequently Asked Questions

Which cities get the 50% HRA limit from 1 April 2026?

Mumbai, Kolkata, Delhi, Chennai, Hyderabad, Pune, Ahmedabad and Bengaluru. Any other place uses the 40% salary limit.

Is HRA exempt under the default new tax regime?

No. Section 202(2)(a)(i) excludes the Schedule III Sl. No. 11 HRA exemption when computing income under that regime.

Is landlord PAN compulsory?

For employer HRA-claim documentation under Rule 205, landlord PAN is required where aggregate rent paid during the tax year exceeds ₹1,00,000, together with the landlord's name and address. The employee must also disclose relationship with the landlord, if any.

What replaced Form 12BB?

Form 124 is the current form under Rule 205 for employee evidence and particulars of claims for salary-TDS purposes.

What replaced Section 80GG from 1 April 2026?

Section 134 of the Income-tax Act, 2025 is the current provision for deduction in respect of rents paid. Form 10BA continues as the prescribed declaration.

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