HRA Tax Exemption in India — How to Maximise Your Tax Savings on Rent

## The HRA exemption formula HRA exemption = **minimum** of these three amounts: 1. **Actual HRA received** from employer 2. **Rent paid minus 10% of basic salary** 3. **50% of basic** (for metro cities: Delhi, Mumbai, Chennai, Kolkata) or **40% of basic** (all other cities) You can only claim the lowest of the three. ## Example calculation Basic: ₹60,000/month | HRA received: ₹25,000/month | Rent paid: ₹30,000/month | City: Mumbai (metro) 1. Actual HRA: ₹25,000 2. Rent – 10% of basic: ₹30,000 – ₹6,000 = ₹24,000 3. 50% of basic: ₹30,000 Exempt HRA = minimum = ₹24,000/month = ₹2.88 lakh/year ## When HRA makes old regime worth it For someone in Mumbai with ₹60,000 basic: - Annual HRA exemption: ₹2.88 lakh - Plus 80C: ₹1.5 lakh - Plus 80D: ₹25,000 - Plus standard deduction: ₹50,000 - Total deductions: ~₹5.13 lakh At ₹12 lakh income, this is significant — old regime likely wins. ## Renting from parents: a tax-efficient strategy If your parents own a home you live in, consider formally renting from them. You claim HRA exemption; they declare rental income but may be in a lower tax bracket, or the income may be covered by the standard deduction for house property (30%) and municipal tax deduction.