Statutory 3-Step HRA Formula
For Tax Year 2026-27, the HRA exemption appears in Schedule III, Table serial 11 of the Income-tax Act, 2025 and is calculated under the applicable rule as the minimum of: 1. Actual HRA received for the relevant period 2. Rent paid minus 10% of qualifying salary 3. 50% of qualifying salary for the prescribed four cities, or 40% elsewhere Qualifying salary is not always basic pay alone: it can include dearness allowance that forms part of retirement benefits and turnover-based commission. Amounts and location must be matched to the period for which the accommodation is occupied.
Is Bangalore or Bengaluru a Metro City for HRA?
No. For the HRA formula represented here, Bengaluru/Bangalore is in the 40% non-metro category. The prescribed 50% category names Mumbai, Delhi, Kolkata and Chennai (the rule historically uses Bombay, Delhi, Calcutta and Madras). Do not automatically extend the 50% category to an entire metropolitan region: Navi Mumbai, Thane, NCR locations and other adjoining municipalities need to be classified by the actual accommodation location and current rule, not by a marketing use of “metro”.
Worked Example: Metro City (Mumbai)
Employee in Mumbai: • Basic Salary: ₹60,000/month (₹7,20,000/year) • HRA received: ₹30,000/month (₹3,60,000/year) • Rent paid: ₹35,000/month (₹4,20,000/year) Calculation: 1. Actual HRA received = ₹3,60,000 2. Rent paid − 10% of Basic = ₹4,20,000 − ₹72,000 = ₹3,48,000 3. 50% of Basic (Metro) = ₹3,60,000 Minimum = ₹3,48,000 (exempt) Taxable HRA = ₹3,60,000 − ₹3,48,000 = ₹12,000
Worked Example: Non-Metro City (Bengaluru)
Same salary structure in Bengaluru: • Basic Salary: ₹60,000/month (₹7,20,000/year) • HRA received: ₹30,000/month (₹3,60,000/year) • Rent paid: ₹35,000/month (₹4,20,000/year) Calculation: 1. Actual HRA received = ₹3,60,000 2. Rent paid − 10% of Basic = ₹4,20,000 − ₹72,000 = ₹3,48,000 3. 40% of Basic (Non-Metro) = ₹2,88,000 Minimum = ₹2,88,000 (exempt) Taxable HRA = ₹3,60,000 − ₹2,88,000 = ₹72,000 Notice: The employee in Bengaluru pays tax on ₹72,000 more HRA compared to Mumbai, solely due to the metro/non-metro classification.
HRA When Living in Own House or No Rent
If no rent is actually paid, HRA exemption is unavailable. Rent paid to a relative is not automatically allowed or disallowed merely because of the relationship: the arrangement must be genuine, supported by tenancy/payment evidence, and consistently reflected in the recipient's tax position. Closely connected arrangements, including spouse or parent rent, can receive additional scrutiny; do not rely on a blanket “always allowed” or “always disallowed” rule.
Payroll Evidence When Annual Rent Exceeds ₹1,00,000
Employer payroll-evidence instructions have required landlord PAN when annual rent exceeds ₹1,00,000. Where the landlord has no PAN, the employee can be asked for a declaration with the landlord's name and address instead. For Tax Year 2026-27, use the salary-information statement and evidence workflow actually prescribed by the employer and official portal. Legacy Form 12BB is a useful historical label, not a form name this guide assumes remains current under the 2025 Act.
Section 134 / Legacy Section 80GG: Rent Deduction Without HRA
Section 134 of the Income-tax Act, 2025 carries the rent-paid deduction formerly labelled Section 80GG. Subject to its conditions, the deduction is the least of: 1. ₹5,000 per month 2. Rent paid minus 10% of adjusted total income 3. 25% of adjusted total income It is unavailable where the taxpayer has HRA income covered by Schedule III, Table serial 11. Ownership restrictions apply to the taxpayer, spouse, minor child and an HUF in the statutory circumstances, so the condition is broader than merely not owning a house in the work city. Use the current prescribed declaration rather than assuming legacy Form 10BA remains the Tax Year 2026-27 form name.
Official References
Source date: 2026-08-08. Confirm later notifications, rules and portal forms before filing or transacting.