The House Rent Allowance (HRA) is an integral part of most people’s salary. Under Rule 2A of the Income Tax Rules (ITR) 1962, this salary component is not fully taxable if a person is living on rent. Individuals residing in metro cities can claim a 50% tax exemption on their basic salary as HRA, while those living in non-metro cities can claim a 40% tax exemption on their basic salary as HRA. This means there is a difference in HRA calculations between metro and non-metro cities. In this guide, you will find answers to questions such as whether Hyderabad qualifies as a metro city for HRA calculation, whether Pune is considered a metro city for HRA purposes, and how HRA is calculated in metro and non-metro cities.
HRA exemption in old tax regime vs new tax regime
| Old tax regime | New tax regime |
| Full HRA exemption can be availed under Section 10(13A) | No HRA benefits can be availed |
| Other deductions such as 80C, 80D can be opted for | Lesser deductions |
| Tax rates are higher since lot of deductions available | Lower tax rates because of fewer tax deductions available |
| Better options if HRA claims are large | Better for people with small HRA claims |
| Can claim full HRA exemption under Section 10(13A) |
Note that to claim HRA you will have to opt for old tax regime as this is not included in the new tax regime. Also, if you forget to opt, then by default, you would have chosen the new tax regime, thereby losing the chance to claim HRA benefits. However, there are many reports with people of the country asking for HRA to be added to the new tax regime as well. With housing being an important necessity and the rented one which takes up a sizable part of one’s salary, incorporating HRA in new tax regime will be very favourable. In fact, most people opt for old tax regime only because new tax regime doesn’t support HRA benefits.
Importance of metro cities in HRA calculation
Indian cities are categorised into X, Y, and Z classes that determine the HRA percentage. This classification, established by the Seventh Central Pay Commission, aligns HRA with urban living costs and ensures the compensation is equitable across different places. Delhi, Mumbai, Kolkata, and Chennai belong to the X class and receive the highest HRA at 30% of the basic pay. Ahmedabad, Pune, and Hyderabad belong to class Y and receive HRA at 20% of the basic pay, while all other towns come in the Z class and receive HRA at 10% of the basic pay.
HRA Calculation: List of key metro cities in India
| City | Category | Population in 2024 |
| Delhi | X | Around 33.8 million |
| Mumbai | X | Around 21.7 million |
| Bengaluru | X | Around 14 million |
| Chennai | X | Around 12 million |
| Kolkata | X | Around 15.6 million |
| Hyderabad | X | Around 11 million |
| Pune | X | Around 5 million |
| Ahmedabad | X | Around 8.8 million |
What qualifies as metro cities in India in 2025 for HRA calculation?
There are four cities that are considered metro cities in India for HRA calculation purposes. These are:
• Delhi
• Mumbai
• Kolkata
• Chennai
What qualifies as non-metro cities in India in 2025 for HRA calculation?
Cities that are part of the National Capital Region (NCR) and Mumbai Metropolitan Region (MMR) are not considered metro cities for HRA tax calculation. Similarly, some of the largest cities in the country, due to their size, population, and rental value, are also not considered for HRA tax calculation. They cannot claim 50% tax exemption on HRA, even though rents in these cities might be significantly high.
• Noida
• Gurgaon
• Faridabad
• Navi Mumbai
• Thane
• Bangalore
• Hyderabad
• Pune
• Ahmedabad
While India recognises Bangalore, Hyderabad, and Pune as metro cities, along with Delhi, Mumbai, Kolkata, and Chennai, these three cities are not recognised as metro cities when it comes to 50% tax exemption on HRA. While Bangalore has been trying to be on the list of recognised metro cities for HRA for a long time, it couldn’t make it on the list even in 2024 when the centre, on August 8, 2024, announced that no new city would be granted metro city status for HRA purposes. Industry experts believe that granting Bangalore metro city status for HRA purposes (50% exemption) will boost the realty segment further.
HRA calculation: Ways to claim HRA in 2025
Salaried individuals are allowed the lowest of the following amounts as tax deductions:
• The actual HRA
• 50% of your basic salary plus dearness allowance (DA), if they live in a metro city; 40% for non-metros
• Actual rent paid minus 10% of your basic salary plus DA
Note that if a government employee is unable to avail of government accommodation as per the stipulated policy, he will get an HRA certificate for claiming HRA.
What is an HRA calculator?
An HRA calculator helps in calculating the HRA that helps in claiming income tax deduction. An HRA calculator is easy to use, faster, and gives an accurate answer. It helps in better planning of your finances when you know about the tax exemption you will get and the taxes that you will be required to pay.
Inputs to be entered in an HRA calculator
• Basic salary
• Dearness allowance
• HRA received from employer
• Rent paid by the employee
• City where the employee resides – Metro/Non-metro
On entering these details in an HRA calculator, you will get to know the HRA tax exemption amount. While you have a number of options when it comes to opting for an HRA calculator, it is recommended to choose the HRA calculator available on the income tax website. To access the HRA calculator on the income tax website, log on to https://incometaxindia.gov.in/Pages/tools/house-rent-allowance-calculator.aspx
For example, enter details in such as basic salary, DA, commission, the HRA received, rent paid and when you click on calculate you will get the exempted house rent allowance and the taxable house rent allowance based on which you can do your financial planning.
HRA calculation in metro cities: Example
Delhi-based Rajat Makhija’s basic monthly salary is Rs 50,000 and he receives Rs 18,000 as HRA. For his rented home, he pays Rs 15,000 as monthly rent. In his case, the deduction will be the least of the three amounts:
- 50% of her basic salary: Rs 25,000
- Actual HRA: Rs 18,000
- Actual rent minus 10% of the basic salary: Rs 10,000 (least of the three)
This makes his annual deduction Rs 1.20 lakh
HRA calculation in non-metro cities: Example
Avani Pathak earns Rs 20,000 as basic salary. Her HRA is Rs 7,000 and she pays Rs 6,000 for her rented quarters in Lucknow. In her case, the deduction will be the least of the three amounts:
- 40% of her basic salary: Rs 8,000
- Actual HRA: Rs 7,000
- Actual rent minus 10% of the basic salary: Rs 4,000 (least of the three)
This makes the annual deduction Rs 48,000.
What are the documents required to claim HRA?
• Rent receipt
• Rental agreement
• Letter from landlord that you have rented the house
• Proof of payment of the rent for the housing unit
• Form 12BB salary slip
• PAN card of the tenant and PAN card of the landlord
Is it allowed to claim both HRA and deduction on home loan interest?
Yes, one can claim both HRA tax benefits and deduction on home loan interest.
• If both your own property and rental place are in the same city, then you will have to explain why you are staying on rent.
• If your property is in another city and you stay in another city, then the claims can be done easily
Is it necessary to show your landlord’s PAN card for claiming HRA?
In case you are staying on rent and you are making a rental payment of more than Rs 1 lakh per annum, then you have to show your landlord’s PAN card for HRA claim. Failure to do so will result in losing HRA. In case your landlord doesn’t have a PAN card, then he has to sign a self-declaration and submit it.
How much HRA can you claim without the landlord’s PAN card?
If you do not have the landlord’s PAN card, there are certain rules that must be followed to avail the exemption. The tenant can claim only 50% of the rent paid. For example, if a tenant pays Rs 20,000 as rent, he can claim only Rs 10,000 in the absence of the landlord’s PAN card. If the landlord refuses to share the PAN card, the tenant can submit a declaration while claiming the HRA exemption, stating that the landlord has not shared his PAN card. Please note that any rent exemption above Rs 15,000 requires the landlord’s PAN card.
What should a person do if they forget to submit the rent receipts to their employer?
HRA can be claimed directly when you file your income tax returns in case you forgot to submit rent receipts to your company’s HR at the time of claiming HRA. To do this, adjust the taxable income so that it includes the HRA and then calculate the tax that has to be paid on the lowered taxable income. In case more tax has been deducted, you will get an income tax refund.
What is the rule for tenants who pay rent to NRI landlords?
Before paying rent to the NRI landlord, a tenant has to deduct 30% Tax Deducted at Source (TDS). This is in accordance with Section 195 of the Income Tax Act, 1961, which mandates that any payment made to an NRI, including rental income, is subject to TDS. Typically, 30% of the rental amount is the TDS. This has to be deducted before the tenant makes the rental payment to the NRI landlord. This money has to be remitted by the tenant to the Indian government on behalf of the NRI. Once done, the tenant has to file a TDS return and issue a TDS certificate to the NRI landlord. If the tenant doesn’t deduct TDS or miscalculates it, they will have to pay a penalty and interest and may also face legal consequences.
Can you claim HRA if you are paying rent to your parents?
Yes. You can claim HRA if you are paying rent to your parents, provided you pay the rent, get a proper invoice for it, and record the whole transaction. Any step missing in this entire transaction will default your claim, and that may lead to legal issues.
What can you do if you don’t get HRA from your employer?
In case you don’t get HRA from your employer, you can claim your HRA deduction under Section 80GG. For that, you have to:
• Be a salaried employee or self-employed
• You have not received HRA during that year
• The expenses related to the rental apartment should be more than 10% of your total income
• You or your family don’t have a property where you stay or carry out your work
Who cannot claim the HRA?
People who are self-employed generally cannot claim the HRA as this facility is for salaried people. However, they can claim the HRA under Section 80GG of the IT Act, 1961.
Housing.com POV
HRA calculation differs between metro and non-metro cities. According to section 10 (13A), rule number 2A of the IT Act, all salaried people can claim HRA. While non-salaried people cannot claim HRA, they under section 80GG can claim tax deductions on rented accommodation. A point to remember is that HRA benefits cannot be claimed by people who have opted for the new tax regime.
FAQs
Which cities are metro cities for HRA calculation?
Delhi, Mumbai, Kolkata and Chennai are considered metro cities for HRA calculation.
Is Pune a metro city for HRA calculation?
No. Pune is not a metro city for HRA calculation.
Is Gurgaon considered a metro city for HRA calculation?
No, Gurgaon is not considered a metro city for HRA calculation.
Is Bangalore considered a metro city for HRA calculation?
No, Bangalore is not considered a metro city for HRA calculation.
Is Hyderabad a metro city for HRA calculation?
No, Hyderabad is not considered a metro city for HRA calculation.
| Got any questions or point of view on our article? We would love to hear from you. Write to our Editor-in-Chief Jhumur Ghosh at jhumur.ghosh1@housing.com |