What is HRA?House Rent Allowance
HRA is a salary allowance for rented housing. Under the old tax regime part of it can be exempt: the least of actual HRA, 50% or 40% of basic, and rent paid minus 10% of basic.
Definition
House Rent Allowance is paid to help employees meet rent. Its exemption is available only to employees who pay rent and choose the old tax regime. Under the new regime HRA is fully taxable. From 1 April 2026 the Income-tax Act, 2025 replaces the 1961 Act, so the section numbers you may know (such as 10(13A)) are renumbered; the three-limb test is carried forward.
How it works
- Exempt HRA is the least of: (1) actual HRA received, (2) 50% of basic for metro cities or 40% for others, (3) rent paid minus 10% of basic.
- Metro cities for this rule are Delhi, Mumbai, Kolkata and Chennai.
- Employees declare rent during the year and submit proof before the year-end so TDS can reflect the exemption.
Why HR and payroll teams care
HRA exemption is one of the largest drivers of old-regime TDS. Proof collection and regime choice must be handled before the last quarter to avoid a TDS spike in February and March.
Example
Basic ₹40,000, HRA ₹20,000, rent ₹18,000, non-metro
- Actual HRA: ₹20,000
- 40% of basic: ₹16,000
- Rent − 10% of basic: ₹18,000 − ₹4,000 = ₹14,000
- Exempt HRA = ₹14,000 a month; taxable HRA = ₹6,000
HRA in NeevHR
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