House rent allowance is the one deduction that still makes the old regime worth a look for many salaried people in cities. It is also the one most often claimed without the paperwork to back it. The rule is simple; the proof is what matters.
The three-limit rule
The exempt amount is the least of:
- the HRA you actually received;
- rent paid minus 10% of basic salary (basic plus dearness allowance, where DA counts for retirement benefits);
- 50% of basic salary if you live in a metro, 40% otherwise.
Whatever is left of the HRA after the exempt part is taxed as salary. If you pay no rent, nothing is exempt.
Which cities are metros for 2026-27
As reviewed on 16 September 2026, the 50% limit applies in Delhi, Mumbai, Kolkata, Chennai, Bengaluru, Hyderabad, Pune and Ahmedabad. For FY 2025-26 and earlier it was the first four only. Chengalpattu, Kanchipuram and the rest of Tamil Nadu outside Chennai are at 40%. Where the boundary of Chennai falls for this purpose is a question worth asking rather than assuming.
A worked example
| Chennai (metro) | Chengalpattu (non-metro) | |
|---|---|---|
| Basic salary | ₹6,00,000 | ₹6,00,000 |
| HRA received | ₹2,40,000 | ₹2,40,000 |
| Rent paid | ₹2,16,000 (₹18,000 a month) | ₹2,16,000 |
| Limit 1 — HRA received | ₹2,40,000 | ₹2,40,000 |
| Limit 2 — rent less 10% of basic | ₹1,56,000 | ₹1,56,000 |
| Limit 3 — 50% / 40% of basic | ₹3,00,000 | ₹2,40,000 |
| Exempt (the least) | ₹1,56,000 | ₹1,56,000 |
In this example the second limit is the smallest either way, so the city makes no difference. It starts to matter when rent is high relative to basic salary.
The proof
- Rent receipts for every month, with the landlord's name, the address of the house and the period. A revenue stamp is conventional above ₹5,000 in cash.
- The landlord's PAN where rent exceeds ₹1,00,000 a year. No PAN, no exemption above that line — the employer will refuse it, and so will an assessing officer.
- A rent agreement, and payment through the bank rather than cash wherever possible. Bank entries are the evidence that settles most queries.
- Rent above ₹50,000 a month: you, the tenant, must deduct tax at source on it and file a challan-cum-statement (formerly Form 26QC), as reviewed on 16 September 2026. Landlords do not always mention this; the obligation is yours regardless.
Rent paid to a parent
It is allowed, provided it is real: the house is theirs, the rent is actually paid, and they show it as income in their own return. The rent must be at a going rate. What does not survive a query is rent to a parent for a house you own jointly, or rent that moves from your account to theirs and back.
This note is general information, not advice on anyone's facts. Send an enquiry about a specific matter.