How much rent is tax-free?
HRA exemption = the least of: actual HRA, rent − 10% of basic, and 50% of basic (metro) / 40% (non-metro). On ₹50k basic + ₹25k HRA paying ₹20k rent in a metro, that's ₹1.80 L tax-free, about ₹54,000 saved at the 30% slab. Old regime only.
The three-way "least of" test
House Rent Allowance is part of most Indian salary packages, but only a portion of it escapes tax. And that portion isn't your choice, it's the smallest of three formulas under Section 10(13A). The one that trips people up is the middle limb: you subtract 10% of your basic salary from the rent you actually pay. Pay too little rent relative to your salary and this limb shrinks your exemption fast. Here's the exemption on a ₹50,000/month basic with ₹25,000/month HRA in a metro, across rent levels:
| Monthly rent | Rent − 10% basic | Exempt (least) | Tax saved (30%) |
|---|---|---|---|
| ₹10,000 | ₹0.60 L | ₹0.60 L | ₹18,000 |
| ₹15,000 | ₹1.20 L | ₹1.20 L | ₹36,000 |
| ₹20,000 | ₹1.80 L | ₹1.80 L | ₹54,000 |
| ₹25,000 | ₹2.40 L | ₹2.40 L | ₹72,000 |
| ₹30,000 | ₹3.00 L | ₹3.00 L | ₹90,000 |
Metro (50%) example, basic ₹50,000/mo, HRA ₹25,000/mo, FY 2025-26, old regime. The exemption is capped by whichever limb is smallest, often the actual HRA or the 50%/40% cap at higher rents. Not tax advice.
Why the "10% of basic" catch matters
Notice how the exemption grows with rent until it hits a ceiling: the actual HRA received, or the 50% (metro) / 40% (non-metro) cap. That's the key insight: your exemption is bounded by your salary structure, not just your rent. If your basic is low (common when employers load pay into allowances to reduce their PF cost), both the "50% of basic" limb and the "10% of basic" subtraction shift, and your HRA benefit is smaller than the rent alone would suggest. And remember the regime rule above all: none of this applies under the new tax regime. Before counting on HRA, confirm you're on the old regime and that the maths, run both ways, still favours it.