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HRA Calculation in Metro and Non-Metro Cities in 2025

By PropertyGeld Editorial Team

Published on PropertyGeld: 6 Mar 2026

House Rent Allowance (HRA) is a significant component of many salaried employees’ income. Under Section 10(13A) of the Income Tax Act, 1961 along with Rule 2A of the Income Tax Rules, 1962, a part of this allowance can be exempt from tax if the employee lives in a rented house.

The HRA exemption depends on the type of city where the employee resides. Individuals living in metro cities can claim an exemption of up to 50% of their basic salary, while those staying in non-metro cities can claim up to 40%. Because of this difference, HRA calculations vary depending on location.

This guide explains how HRA works in metro and non-metro cities, eligibility criteria, calculation methods, and the rules applicable in 2025.

House Rent Allowance is a part of a salary package provided by employers to help employees cover rental expenses.

If an employer includes HRA in the salary structure, the employee can claim tax exemption under Section 10(13A) of the Income Tax Act along with Rule 2A.

If the employer does not provide HRA, employees may still claim a deduction under Section 80GG if they are paying rent.

However, if a person lives in their own house and does not pay rent, the HRA amount becomes fully taxable.

To claim HRA tax benefits, the following conditions must be satisfied:

• The person must be a salaried employee.

• They must live in a rented accommodation.

• HRA must be included in the salary structure.

• Valid rent receipts or proof of rent payment must be submitted.

For employees staying in rented accommodation, Section 10(13A) offers several advantages:

• A part of the HRA becomes tax-free, lowering the taxable income.

• Residents of metro cities may receive higher tax exemptions.

• Rent paid to parents can also be considered if proper documentation is available.

• HRA benefits can also be claimed even if the rented property is in a city different from the workplace.

Employees must choose the old tax regime if they want to claim HRA benefits. If the new regime is selected, HRA exemption cannot be claimed.

Indian cities are grouped into X, Y, and Z categories based on population and living costs. This classification was introduced following recommendations of the Seventh Central Pay Commission.

• X Category Cities: Highest HRA percentage

• Y Category Cities: Medium HRA percentage

• Z Category Cities: Lowest HRA percentage

Government employees receive HRA based on these categories:

• X category: 30% of basic salary

• Y category: 20% of basic salary

• Z category: 10% of basic salary

For income tax purposes, only four cities are officially considered metro cities for HRA exemption calculations:

• Delhi

• Mumbai

• Kolkata

• Chennai

Residents of these cities can claim up to 50% of their basic salary as HRA exemption.

All cities apart from the four listed above are treated as non-metro cities for HRA purposes. Examples include:

• Noida

• Gurugram

• Faridabad

• Navi Mumbai

• Thane

• Bengaluru

• Hyderabad

• Pune

• Ahmedabad

Even though some of these cities are large and expensive, they still fall under the non-metro category, allowing only 40% HRA exemption.

The HRA exemption is calculated as the lowest of the following three values:

1. Actual HRA received from employer

2. 50% of basic salary (metro cities) or 40% (non-metro cities)

3. Actual rent paid minus 10% of basic salary + dearness allowance

The smallest value among these is considered the tax-exempt HRA.

Suppose a person living in Delhi has:

• Basic salary: ₹50,000 per month

• HRA received: ₹18,000 per month

• Monthly rent paid: ₹15,000

Calculation:

• 50% of basic salary = ₹25,000

• Actual HRA = ₹18,000

• Rent minus 10% salary = ₹10,000

The lowest amount is ₹10,000, so the yearly HRA exemption becomes ₹1.20 lakh.

Suppose a person living in Lucknow earns:

• Basic salary: ₹20,000

• HRA received: ₹7,000

• Rent paid: ₹6,000

Calculation:

• 40% of salary = ₹8,000

• Actual HRA = ₹7,000

• Rent minus 10% salary = ₹4,000

The lowest value is ₹4,000, giving an annual deduction of ₹48,000.

Employees must keep the following documents ready while claiming HRA:

• Rent receipts

• Rental agreement

• Proof of rent payment

• Form 12BB

• PAN card of landlord (if annual rent exceeds ₹1 lakh)

Taxpayers can claim both HRA exemption and home loan interest deduction simultaneously.

This is possible when:

• The owned house is in a different city from the workplace

• Or there is a valid reason for living in rented accommodation despite owning a house.

Employees can claim HRA even if they pay rent to their parents, provided:

• Rent payments are genuine

• Proper rent receipts are maintained

• Transactions are properly documented.

When rent is paid to a landlord who is a Non-Resident Indian (NRI), the tenant must deduct 30% TDS under Section 195 of the Income Tax Act before making the payment.

Failure to deduct TDS may lead to penalties.

• Fake rent receipts are illegal and may attract penalties.

• Maintenance charges, electricity, and water bills cannot be included in HRA exemption.

• If rent receipts were not submitted to the employer, HRA can still be claimed while filing the Income Tax Return (ITR).

An HRA calculator is an online tool that helps employees estimate their tax-exempt HRA amount quickly.

By entering details such as:

• Basic salary

• Dearness allowance

• HRA received

• Rent paid

• City of residence

the calculator automatically computes the eligible exemption amount.

This tool helps in accurate tax planning and financial management.

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• HRA Calculation in Metro and Non-Metro Cities in 2025
• HRA Calculation in Metro and Non-Metro Cities in 2025: Complete Tax Guide
• Metro Cities for HRA Calculation in India: Understanding Tax Benefits
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