HRA Exemption under the Income-tax Act 2025 – Schedule III Sl. 11 and Rule 279 Explained
- HRA exemption is the least of: HRA received, rent paid minus 10% of salary, and 50% of salary (Mumbai, Kolkata, Delhi, Chennai, Hyderabad, Pune, Ahmedabad, Bengaluru) or 40% (elsewhere).
- The rule is Rule 279 under Schedule III (Table: Sl. No. 11); "salary" means basic pay plus dearness allowance if the terms provide.
- HRA exemption is not available if you are taxed under the new regime (section 202(2)(a)(i)); then section 134 is also a Chapter VIII deduction and not available.
Under the old Act, house rent allowance was exempt under section 10(13A) read with Rule 2A. In the Income-tax Act, 2025 the exemption is in Schedule III (Table: Sl. No. 11), and the limit is worked out under Rule 279 of the Income-tax Rules, 2026.
Conditions in Schedule III, Sl. No. 11
The special allowance from your employer is not included in total income only if:
- it is specifically granted to meet the rent you pay for residential accommodation you occupy;
- it is within the limit prescribed (Rule 279);
- the accommodation is not owned by you; and
- you have actually paid rent for it.
The Rule 279 formula
The exempt amount is the least of the following for the period you occupied the accommodation:
- the actual HRA received;
- rent actually paid minus one-tenth (10%) of salary; and
- a percentage of salary – 50% if the accommodation is in Mumbai, Kolkata, Delhi, Chennai, Hyderabad, Pune, Ahmedabad or Bengaluru, and 40% for any other place.
"Salary" here includes dearness allowance if the terms of employment provide for it, and excludes all other allowances and perquisites (Rule 279(2)(b)).
Worked example
| Item (for 12 months) | Amount (₹) |
|---|---|
| Salary (basic + DA) | 6,00,000 |
| HRA received | 2,40,000 |
| Rent paid | 2,40,000 (house in a non-metro town) |
| (a) HRA received | 2,40,000 |
| (b) Rent paid − 10% of salary (2,40,000 − 60,000) | 1,80,000 |
| (c) 40% of salary | 2,40,000 |
| Exempt HRA (least of a, b, c) | 1,80,000 |
| Taxable HRA | 60,000 |
In Hyderabad the third limit would be 50% of salary (₹3,00,000) – but the least figure would still be ₹1,80,000.
Practical points
- Work it month by month if your rent, salary or city changed during the year, since the formula applies to the period of occupation.
- Give your employer your rent details and receipts. Employee claims for TDS are made on Form No. 124 (rule 205).
- If you pay rent but receive no HRA, section 134 (old 80GG) gives a separate deduction, with a declaration in Form No. 31 (rule 65).
- Keep your rent receipts and rental agreement, as you must have actually paid the rent to claim the exemption.
New regime
Section 202(2)(a)(i) says that under the new regime total income is computed without the exemptions in Schedule III Sl. No. 5, 6, 7, 8, 11 and 17. So the HRA exemption in Sl. No. 11 is available only if you opt out of the new regime. Compare both regimes before deciding.
Still have a question? Ask TAXBADI – get an answer from the Act, Rules and forms, with the exact sections cited.
More guides
- Arrears of Salary – Relief under Section 157, Rule 73 and Form No. 39 (Old 89(1))
- Capital Gains Tax Rates 2026-27 – Shares, Mutual Funds and Property under the New Act
- Clubbing of Income – Section 99: When Spouse or Minor Child Income Is Added to Yours
- Filing Income Tax Return Late – Fee under Section 428 and Interest under Sections 423 to 425
This guide is for general information and is not tax advice. Tax figures are before health and education cess unless stated. The law and the official notifications are the final authority – see our Disclaimer. Found a mistake? Tell us.