You rent in Pune. Is your city cap 50% or 40% of salary?

40% — only Delhi, Mumbai, Kolkata and Chennai are metros for this formula

50% — Pune rents are metro-level now

50%, if your rent is above ₹15,000 a month

Which of the three limbs usually turns out to be the smallest?

The rent test — rent paid minus 10% of salary

Lesson 1 of 3 · 6 min

The least-of-three formula

Your exemption is the smallest of three amounts, worked out across the year — and the rent-minus-10%-of-salary limb is usually the one that decides it.

HRA — house rent allowance — is a slice of salary your employer labels for rent. If you actually pay rent, part of it can escape tax under the old regime, via section 10(13A) and Rule 2A.

How much escapes is not a flat percentage. It is the LEAST of three amounts, worked out for the year — and for this formula, 'salary' means basic pay plus dearness allowance.

The three limbs — your exemption is the smallest of them

Salary here = basic + dearness allowance, for the period the rent was paid.
Limb	Amount
Actual HRA received	Whatever your payslips total for the year
The city cap	50% of salary in Delhi, Mumbai, Kolkata or Chennai; 40% anywhere else
The rent test	Rent you paid, minus 10% of salary

Myth

“Bengaluru and Hyderabad are metros, so the 50% cap applies there.”

False

For HRA, 'metro' means exactly four cities: Delhi, Mumbai, Kolkata and Chennai — a list written decades ago and never expanded. Bengaluru, Hyderabad, Pune, Gurugram and everywhere else are 40% cities for this formula, no matter what their rents look like.

Your turn

Basic + DA of ₹40,000 a month in Pune. HRA received: ₹16,000 a month. Rent paid: ₹15,000 a month. What is the annual HRA exemption, in rupees?

My employer pays me HRA — why is only part of it exempt?

KabirTara

Kabirasking
I get HRA every month and I hand almost all of it to my landlord. Why does the whole thing not come out of my taxable salary?
Taraexplaining
Because the formula is not measuring your allowance. It is measuring how much rent you paid over and above a share of your own salary. The allowance is only the ceiling on what that can save you.
Kabirasking
So the three limbs are three different ceilings?
Taraexplaining
Three separate tests, and the smallest answer is the one you get. You never pick between them and nothing is averaged.
Kabirasking
Which one usually turns out smallest?
Taraexplaining
The rent test, nearly always — your rent minus a tenth of salary. That is why a generous allowance on a modest rent exempts far less than people assume, and why paying no rent at all exempts nothing.

Work it out yourself

Put your own salary, HRA and rent in and see which limb caps you — then nudge the rent up and watch the exemption move rupee for rupee.

HRA Exemption Calculator

Match them up

The five words the formula runs on

Pick a term, then pick what it actually means.

Pick a term on the left.

Check yourself

1 / 3

Kabir asks

Your three limbs come out at ₹1,92,000, ₹1,92,000 and ₹1,32,000. What is the exemption?

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