Answer

1. F

   Facts

   HRA exemption is the largest salary deduction for most salaried employees, but the most commonly computed wrong. The 4-city metro rule (Delhi, Mumbai, Chennai, Kolkata only) is where most people err. Bengaluru, Hyderabad, Pune, Ahmedabad are NOT metro. Using 50% instead of 40% for non-metro cities = excess exemption claim = tax demand. The correct formula is always the MINIMUM of three amounts.

2. P

   Provisions and law

   • Sec 11 (old 10(13A))
   • Rule 279 (old Rule 2A)
   • Sec 393 (old 194-IB) link
3. A

   Analysis

   The three-number formula, always the LOWEST: Basic ₹40,000/month. HRA received ₹18,000/month. Rent paid ₹20,000/month. City: Bengaluru (NON-METRO = 40%). (a) Actual HRA = ₹18,000. (b) Rent − 10% basic = ₹20,000 − ₹4,000 = ₹16,000. (c) 40% of basic = ₹16,000. Minimum = ₹16,000/month × 12 = ₹1,92,000/year exempt. Balance HRA (₹18K − ₹16K = ₹2K/month = ₹24K/year) is taxable. Metro cities, ONLY FOUR: Delhi (includes NCR, Gurgaon, Noida? ONLY Delhi proper = metro). Mumbai. Chennai. Kolkata. That is ALL. Bengaluru: NON-METRO (40%). Hyderabad: NON-METRO (40%). Pune: NON-METRO (40%). Ahmedabad: NON-METRO (40%). Jaipur: NON-METRO. Lucknow: NON-METRO. This is a very common error, tech employees in Bengaluru routinely claim 50% thinking Bengaluru is metro. Wrong. HRA when renting from parents: CBDT has allowed HRA exemption when rent is paid to parents who own the property.

4. C

   Conclusion

   1. 1Confirm old regime is selected (HRA exemption only in old regime)
   2. 2Identify: monthly HRA received (from payslip), monthly rent paid (actual), monthly basic salary
   3. 3Identify city: metro (Delhi/Mumbai/Chennai/Kolkata → 50%) or non-metro (all others → 40%)
   4. 4Compute all three amounts: (a) actual HRA, (b) rent−10% basic, (c) 50%/40% × basic
   5. 5Exemption = minimum of three amounts × 12 months
   6. 6Collect: monthly rent receipts, rent agreement, landlord PAN (if annual rent > ₹1L)

General guidance from TaxSavvy’s library of money processes. Laws change; your Savvy confirms the answer on your exact case before anything is filed.