HRA Exemption: Metro vs Non-Metro (Section 11, old 10(13A))

HRA is the single largest exemption for salaried employees in the old regime. Calculated using a three-number formula. Most employees claim the wrong amount because they use the wrong city classification or the wrong basic salary figure. This can cost ₹20,000–60,000 in overpaid tax.

The three-number formula, always pick the LOWEST: Example: Basic salary ₹40,000/month. HRA received ₹20,000/month. Rent paid ₹22,000/month. City: Delhi (metro). (a) Actual HRA = ₹20,000. (b) Rent − 10% basic = ₹22,000 − ₹4,000 = ₹18,000. (c) 50% of basic = ₹20,000. Minimum = ₹18,000/month = ₹2.16L/year exempt. Balance HRA (₹20K − ₹18K = ₹2,000/month) = ₹24,000/year taxable. Metro vs non-metro (THIS MATTERS): Metro: Delhi, Mumbai, Chennai, Kolkata only. Hyderabad, Bengaluru, Pune, Ahmedabad = NON-METRO (40% basic). Many employees in Bengaluru wrongly use 50%, it is 40%. At basic ₹50,000 in Bengaluru: correct = ₹20,000 (40%); incorrect claim of ₹25,000 (50%) = claiming ₹60,000/year excess exemption → creates risk. Rent to family member: CBDT allows HRA exemption even if rent is paid to parent/spouse, as long as rent is actually paid (bank transfer) and landlord declares income.