An allowance to help employees cover rental housing costs, with a partial or full tax exemption under Section 10(13A).
HRA is a salary component employers pay to help cover rental accommodation costs. Employees living in rented housing can claim a partial or complete exemption on this amount under Section 10(13A) of the Income Tax Act — one of the few allowances that still carries a meaningful tax break under the Old Tax Regime.
The exemption is the lowest of three amounts: the actual HRA received, 50% of salary (Basic + DA) for metro cities or 40% for non-metro cities, and actual rent paid minus 10% of salary (Basic + DA). Employees who own their home or don't pay rent can't claim this exemption — the full HRA becomes taxable.
The metro list itself changed for FY2026-27: the Income-Tax Rules, 2026 expanded the 50% list from four cities (Delhi, Mumbai, Chennai, Kolkata) to eight, adding Bengaluru, Hyderabad, Pune, and Ahmedabad from 1 April 2026. The four-city list applied through FY2025-26.
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