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What it calculates: Exempt HRA (monthly), Taxable HRA (monthly), Exempt HRA (yearly).
Updated 5 June 2026 · Transparent assumptions
The rule is a minimum, which is why the answer is rarely the allowance
The exemption is the least of three amounts: the HRA actually received, the rent paid minus 10% of basic salary, and 50% of basic for a metro city or 40% elsewhere. Whichever of those three is smallest is the exempt figure, and the remainder of the allowance is taxed as ordinary salary.
Because it is a minimum, generosity in one component cannot rescue a shortfall in another. A large HRA on a payslip is worth nothing extra if the rent is low, and a high rent is worth nothing extra if the allowance is small.
Which of the three caps actually bites, and when
For most salaried taxpayers the second figure — rent paid less 10% of basic — is the one that binds, because rent tends to be modest relative to the allowance offered. The immediate implication is that the exemption falls away entirely once rent drops to 10% of basic or below.
The metro or non-metro cap becomes the binding one at the other extreme, where rent is high relative to salary. Running the tool with your real figures shows which constraint you are actually up against, which is the only way to know whether a rent change would move the exemption at all.
Only four cities count as metros for this rule
For HRA purposes the metro classification covers Delhi, Mumbai, Kolkata and Chennai. Cities that are obviously expensive but not on that list — Bengaluru, Hyderabad, Pune — take the 40% figure, which surprises people whose rent looks metropolitan.
The classification follows where you live and pay rent, not where your employer is registered. Getting this wrong in either direction changes the third cap by a quarter of its value, which is enough to change the answer whenever that cap is the binding one.
No rent, your own house, or the wrong tax regime
The exemption requires rent actually paid for accommodation you occupy but do not own. Living in a property you own disqualifies it completely, however much HRA the payslip shows, and rent paid to a family member is allowed only where the arrangement is genuine and documented.
The exemption is also available under the old tax regime. Anyone who has opted into the new regime cannot claim it at all, so the first question is not how much is exempt but whether the claim is open to you in the first place.
Sources & References
Figures on this page are checked against primary, authoritative sources. Links open in a new tab.
Tax rules vary by country, state, tax year, filing status, income type, deductions, and exemptions. This calculator is educational and uses the values you enter. Always verify final tax treatment with official sources or a qualified tax professional.
Published the calculator with its formula, worked example, assumptions, limitations and a bespoke guide, and added an automated formula test suite covering it.
Tested the least-of-three exemption rule across cases where each of the three limits is the binding one in turn.
Tested that rent at or below 10% of basic salary produces no exemption at all, and that the exemption never exceeds the HRA received.
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