HRA Exemption Calculation and Rent Receipts: A Complete Guide
Calculate HRA exemption with the least-of-three rule, see a worked example, and learn the rent receipt rules: landlord PAN above Rs 1 lakh and revenue stamps.
If you receive House Rent Allowance (HRA) and live in rented accommodation, part or all of that allowance can be exempt from tax under the old regime. The exempt amount is not simply the rent you pay; it is worked out using a "least of three" rule. You also need proper rent receipts, and in some cases your landlord's PAN, to claim it. This guide explains both.
Calculate in seconds: the free HRA Exemption Calculator applies the rule for you, and the Rent Receipt Generator produces monthly receipts ready to sign and submit.
HRA exemption is available only under the old tax regime. If you choose the new regime, your entire HRA is taxable. See New vs Old Tax Regime to decide which suits you.
The least-of-three rule
The exempt HRA is the lowest of these three amounts, calculated for the period you actually lived in rented housing:
- Actual HRA received from your employer.
- 50% of salary if you live in a metro city, or 40% of salary elsewhere.
- Rent paid minus 10% of salary.
Here, "salary" means basic pay plus dearness allowance (where DA counts for retirement benefits) plus any commission fixed as a percentage of turnover. It does not include HRA itself, special allowance or bonus.
For HRA purposes, the metro cities have traditionally been Delhi, Mumbai, Kolkata and Chennai. There have been proposals to extend the 50% rate to other large cities such as Bengaluru, Hyderabad, Pune and Ahmedabad under the rules framed for the Income-tax Act, 2025. Check the rules in force for your year on incometax.gov.in before assuming 50%.
Worked example
Priya works in Mumbai. Basic pay is ₹40,000 a month, she has no DA, her HRA is ₹20,000 a month, and she pays rent of ₹18,000 a month. Annual figures:
| Component | Calculation | Amount |
|---|---|---|
| 1. Actual HRA received | ₹20,000 × 12 | ₹2,40,000 |
| 2. 50% of salary (metro) | 50% × ₹4,80,000 | ₹2,40,000 |
| 3. Rent minus 10% of salary | ₹2,16,000 − ₹48,000 | ₹1,68,000 |
| Exempt HRA | Least of the three | ₹1,68,000 |
| Taxable HRA | ₹2,40,000 − ₹1,68,000 | ₹72,000 |
If Priya lived in a non-metro city, the second amount would be 40% × ₹4,80,000 = ₹1,92,000, but the third amount (₹1,68,000) would still be the lowest, so her exemption would not change. In practice, the third limb is often the binding one: paying more rent increases your exemption until another limb takes over.
If your salary, rent or city changes during the year, calculate month by month and add up the results. The HRA Exemption Calculator does this for you.
Rent receipts: what they must show
Employers ask for rent receipts as proof before giving the exemption in your TDS. Each receipt should include:
- Tenant's name and landlord's name.
- Address of the rented property.
- Rent amount and the month or period it covers.
- Date of payment and mode (bank transfer, UPI, cheque or cash).
- Landlord's signature.
- Landlord's PAN, where required (see below).
- A revenue stamp, if rent is paid in cash above ₹5,000.
Most employers accept one receipt per month or one per quarter. Check your company's policy; many ask for receipts only when rent exceeds ₹3,000 a month.
Landlord PAN: the ₹1 lakh rule
Under CBDT instructions, if the rent you pay exceeds ₹1,00,000 in a financial year (that is, more than about ₹8,333 a month), you must give your employer the landlord's PAN. If the landlord genuinely has no PAN, a signed declaration from the landlord to that effect, with their name and address, is normally accepted. Without either, your employer may refuse the exemption.
Revenue stamp for cash payments
Under the Indian Stamp Act, a receipt for a cash payment of more than ₹5,000 needs a ₹1 revenue stamp, signed across by the landlord. Receipts for payments by bank transfer, UPI or cheque do not usually need one, because the bank trail is proof. Stamp rules can vary by state, so follow your employer's instructions. Paying rent through the bank is the cleaner option in any case.
Other rules worth knowing
- Paying rent to parents is allowed if they own the house and you genuinely pay them. They must show the rent as income in their own return. Keep bank records and ideally a rent agreement.
- Paying rent to a spouse is generally not accepted by the tax department.
- Living in your own house in the same city means you cannot claim HRA.
- Home loan and HRA together are possible, for example if your own house is in another city or not yet ready, or if there is a genuine reason you live in rented accommodation.
- High rent: if an individual pays rent of more than ₹50,000 a month, TDS must be deducted on it under section 194-IB, even if the tenant is not otherwise liable to deduct tax. The rate was reduced to 2% from October 2024; verify the current rate before deducting.
- Missed the employer deadline? You can still claim HRA exemption in your income tax return, provided you keep the proof.
- No HRA in your salary? Self-employed people and employees without HRA may be able to claim a deduction under section 80GG (old regime) subject to its own limits.
Step by step
- Collect your basic pay, DA, HRA and monthly rent from your salary slip and rent agreement.
- Enter them in the HRA Exemption Calculator, choosing metro or non-metro.
- Generate receipts for the year in the Rent Receipt Generator, including the landlord's PAN if rent exceeds ₹1 lakh a year.
- Get them signed (with a revenue stamp for cash payments above ₹5,000) and submit them to your employer before the proof deadline.
- Check the exemption in your Form 16, and use the Income Tax Calculator to confirm that the old regime still works out better.
Get your receipts ready: create signed-ready monthly receipts in one go with the free Rent Receipt Generator.
Frequently asked questions
How is HRA exemption calculated?
It is the least of three amounts: actual HRA received; 50 percent of basic plus DA in a metro city or 40 percent elsewhere; and rent paid minus 10 percent of basic plus DA.
When is the landlord PAN mandatory for HRA?
When the annual rent exceeds Rs 1 lakh. If the landlord has no PAN, a signed declaration from the landlord is usually accepted.
Is a revenue stamp needed on rent receipts?
A Rs 1 revenue stamp is needed on receipts for cash payments above Rs 5,000. Payments by bank transfer, UPI or cheque generally do not need one.
Can I claim HRA in the new tax regime?
No. HRA exemption is available only under the old regime. Under the new regime the whole HRA is taxable.
Can I pay rent to my parents and claim HRA?
Yes, if they own the property, you actually pay the rent, and they declare it as income in their tax return. Keep bank records as proof.