What is the three minimum rule for HRA exemption under Section 10(13A)?

HRA exemption equals the lowest of three amounts: (1) actual HRA received from the employer, (2) rent paid minus 10 percent of basic salary plus dearness allowance, (3) 50 percent of basic plus DA for metro cities (Delhi, Mumbai, Chennai, Kolkata) or 40 percent for all other cities. Rule 2A of the Income Tax Rules 1962 codifies this computation.

Which cities qualify as metro for HRA purposes?

Only four cities are classified as metro under Section 10(13A) per CBDT Circular 90/1975: Delhi, Mumbai (including Greater Mumbai), Chennai, and Kolkata. Bangalore, Hyderabad, Pune, Ahmedabad, Gurugram, Noida, and every other Indian city are non-metro for HRA purposes, which caps the third condition at 40 percent of basic.

Is landlord PAN mandatory for HRA claim?

Per CBDT Circular dated 8 October 2013, the landlord PAN must be reported to the employer if the annual rent paid exceeds Rs 1,00,000. If the landlord does not have a PAN, a declaration in Form 60 along with the landlord name and address must be furnished. Without PAN for rent above 1 lakh, the HRA claim is likely to be disallowed at assessment.

Can I claim HRA while paying rent to my parents?

Yes, payment of rent to parents is permitted provided the arrangement is genuine and properly documented. The parent must declare the rent as income in their ITR under house property, with standard deduction of 30 percent available. Pay by bank transfer, sign a rent agreement, and issue monthly receipts. Courts have upheld such claims when documentation is clean, but rent paid to a spouse is generally disallowed.

Is HRA exemption available in the new tax regime?

No. Section 115BAC of the Income Tax Act specifically excludes the HRA exemption under Section 10(13A) from the new tax regime. Salaried people who opt into the new regime lose the HRA benefit entirely, which is often the single biggest reason metro renters stay with the old regime.

HRA Tax Exemption: The Three-Minimum Formula Explained (2026 Guide)

The exact three condition HRA formula under Section 10(13A) with worked examples for Mumbai and Pune. Metro definition, landlord PAN rule, and Form 12BB checklist.

An employee in Mumbai paying 35,000 per month rent with a 10 lakh basic salary can claim an HRA exemption of 2,20,000, which saves 68,640 in tax at the 30 percent bracket. Same rent, same income, but in Pune (non-metro): exemption drops to 3,20,000 without changing much else because 40 percent of basic is a higher cap than rent minus 10 percent. Most salaried people apply the formula wrong or skip deductions they could legally claim.

Quick Answer

HRA exemption equals the minimum of three numbers. First: actual HRA received from the employer. Second: rent paid minus 10 percent of (basic plus DA). Third: 50 percent of (basic plus DA) for Delhi, Mumbai, Chennai, or Kolkata, else 40 percent. Only the lowest of the three is tax exempt. The rest of your HRA component stays taxable.

The Three Condition Formula

Rule 2A of the Income Tax Rules 1962 defines the computation in precise language. Here is the plain English version.

HRA Exemption = MIN of:

Condition 1: Actual HRA received (annual)
Condition 2: Rent paid (annual) - 10 percent of (Basic + DA)
Condition 3: X percent of (Basic + DA)
   where X = 50 for Delhi, Mumbai, Chennai, Kolkata
   X = 40 for all other cities

Three numbers. Take the smallest. That is your exempt portion. The balance of HRA paid by your employer adds to taxable income.

Worked Example 1: Rohan in Mumbai (Metro)

Rohan works at a finance firm in Mumbai. His salary structure:

Basic salary: 10,00,000 per year
Dearness allowance: 0 (private sector, DA is part of basic)
HRA received: 4,00,000 per year
Monthly rent: 35,000, annual rent: 4,20,000

Applying the three conditions:

Condition 1: Actual HRA received = 4,00,000
Condition 2: Rent - 10% of Basic = 4,20,000 - 1,00,000 = 3,20,000
Condition 3: 50% of Basic (Mumbai is metro) = 5,00,000

Minimum of (4,00,000, 3,20,000, 5,00,000) = 3,20,000

HRA exemption: 3,20,000. Balance taxable HRA: 4,00,000 minus 3,20,000 equals 80,000.

Tax saving at the 30 percent bracket including 4 percent cess: 3,20,000 times 0.312 equals 99,840 per year.

Worked Example 2: Priya in Pune (Non-Metro)

Priya works at a tech firm in Pune. Identical salary, identical rent, different city.

Basic: 10,00,000 per year
HRA received: 4,00,000 per year
Monthly rent: 35,000, annual: 4,20,000

Condition 1: Actual HRA received = 4,00,000
Condition 2: Rent - 10% of Basic = 4,20,000 - 1,00,000 = 3,20,000
Condition 3: 40% of Basic (Pune is non-metro) = 4,00,000

Minimum of (4,00,000, 3,20,000, 4,00,000) = 3,20,000

Same exemption of 3,20,000 because condition 2 binds, not condition 3. The metro versus non-metro rule kicks in only when condition 3 is the smallest of the three.

Worked Example 3: Where Metro Status Matters

Arjun earns a 6,00,000 basic and 2,40,000 HRA, pays 20,000 per month rent (2,40,000 per year).

In Delhi (metro):

Condition 1: 2,40,000
Condition 2: 2,40,000 - 60,000 = 1,80,000
Condition 3: 50% of 6,00,000 = 3,00,000
Minimum = 1,80,000

In Noida (non-metro, adjacent to Delhi):

Condition 1: 2,40,000
Condition 2: 2,40,000 - 60,000 = 1,80,000
Condition 3: 40% of 6,00,000 = 2,40,000
Minimum = 1,80,000

Same answer, because condition 2 is the binding constraint in both cases. The metro versus non-metro distinction only matters when rent is high enough relative to basic that condition 2 exceeds condition 3.

When Does Metro Versus Non-Metro Actually Change the Answer

The metro rule matters when you pay very high rent relative to basic salary. Rule of thumb: if your annual rent exceeds 50 percent of basic (for metros) or 40 percent (for non-metros) plus 10 percent of basic, condition 3 becomes the binding constraint.

Basic Salary	Monthly Rent	Metro Exemption	Non-Metro Exemption	Difference
8,00,000	20,000	1,60,000	1,60,000	0
8,00,000	35,000	3,40,000	3,20,000	20,000
8,00,000	50,000	4,00,000	3,20,000	80,000
12,00,000	50,000	4,80,000	4,80,000	0
12,00,000	75,000	6,00,000	4,80,000	1,20,000

At the 30 percent bracket, a 1,20,000 difference in exemption translates to 37,440 in additional tax saved per year just by living in the right city.

Compute your own profile on the HRA calculator.

Only Four Cities Are Metro

This trips up more salaried people than any other HRA rule. CBDT Circular 90/1975 classifies only four cities as metro for the HRA clause:

Delhi (including NCT of Delhi, not Gurugram or Noida)
Mumbai (including Greater Mumbai, not Thane or Navi Mumbai)
Chennai
Kolkata

Every other Indian city, no matter how large, is non-metro: Bangalore, Hyderabad, Pune, Ahmedabad, Jaipur, Lucknow, Surat, Gurugram, Noida, Ghaziabad, Faridabad, Coimbatore. The definition is restrictive and has not been updated since 1975.

The Landlord PAN Rule

Per CBDT Circular dated 8 October 2013, if your annual rent exceeds 1,00,000 (roughly 8,334 per month), you must report the landlord PAN to your employer along with rent receipts. Without it, the employer is supposed to disallow the HRA exemption in TDS computation.

If your landlord does not have a PAN, you can submit a declaration in Form 60 along with the landlord name and address. In practice, this raises a scrutiny flag and should be avoided. Assessment officers at the ITR stage treat missing PAN claims above 1 lakh as likely bogus.

Declaring Rent to Employer vs Claiming in ITR

Two paths exist for claiming HRA exemption:

Path 1: Declare at Start of Year via Form 12BB

At the start of each financial year (or at joining), submit Form 12BB to your employer declaring your rent arrangement. The employer adjusts TDS every month, so your take home increases. Rent receipts are submitted periodically, typically in January or February for the full year.

Path 2: Claim at ITR Filing

If you did not declare to the employer, you can still claim HRA exemption when filing your ITR. TDS will have been deducted at the higher rate throughout the year, and you will receive a refund after filing. The claim is reported in Schedule S of ITR-2 (exempt allowances section).

Path 1 gives better cash flow throughout the year. Path 2 works if you did not anticipate a rent claim or moved mid year.

Rent Paid to Parents: Legal But Document Thoroughly

Paying rent to your parents and claiming HRA exemption is legal if the arrangement is genuine. Requirements:

Sign a proper rent agreement with your parent as landlord
Pay rent via bank transfer, not cash
Issue monthly receipts signed by the parent
The parent must report the rent as income in their ITR under house property, claiming 30 percent standard deduction
The property must be legally owned by the parent (not you, not joint ownership)

If the parent is in a zero tax or 5 percent bracket and you are in 30 percent, the family saves significantly. However, paying rent to a spouse is disallowed by settled tax jurisprudence since spouses are considered to hold joint property under Hindu law defaults.

Documentation Checklist

Keep these on file for any HRA claim:

Monthly rent receipts signed by landlord, with revenue stamp if above Rs 5,000
Registered rent agreement (state specific, registration threshold varies)
Landlord PAN card copy for rent above 1,00,000 per year
Bank statement pages showing rent transfer entries
Form 12BB submitted to employer at start of year
Form 60 with landlord name and address if PAN unavailable (rare exception)

Common Audit Triggers

Assessing officers flag these patterns:

Very high rent relative to declared salary (suggests inflated claim)
Rent paid in cash without banking trail
Missing landlord PAN for rent above 1 lakh
Mismatch between rent declared to employer and rent in ITR
Rent paid to relatives without genuine documentation
HRA claimed for periods when employee was on foreign assignment or working from hometown

HRA in the New Tax Regime

Section 115BAC specifically excludes Section 10(13A) from the new regime. If you opt into the new regime, your entire HRA component is taxable, regardless of rent paid.

For a salaried person with a 3 lakh HRA exemption in the old regime, switching to the new regime adds 3 lakh to taxable income. At the 30 percent bracket, that is roughly 93,600 in additional tax. The new regime lower slabs may or may not compensate, depending on total income and other deductions claimed.

Use our tax calculator to compare both regimes with and without HRA.

Disclaimer

This article is informational only. The author is not a Chartered Accountant or SEBI registered advisor. HRA suitability and regime choice depend on your full salary structure, rent, and deduction profile. Consult a Chartered Accountant for your filing.

Byline: By Aniket Nigam. Verified 2026-04-15 against Section 10(13A) of the Income Tax Act 1961, Rule 2A of the Income Tax Rules 1962, CBDT Circular 90/1975 (metro classification), and CBDT Circular dated 8 October 2013 (landlord PAN rule). Methodology: three condition minimum computed for each example, cross-referenced with current CBDT guidance.