Can you claim HRA exemption in the new tax regime?

The new regime keeps tax rates low by dropping most exemptions and deductions, and HRA exemption is one of them. If you choose the new regime, every rupee of house rent allowance in your salary is taxable, however much rent you pay. Your employer will add the full HRA to your taxable salary when it works out TDS.

What the new regime gives instead is a larger standard deduction of ₹75,000 (against ₹50,000 in the old regime) and lower slab rates. For most employees that is worth more than the HRA exemption on its own, as the numbers below show.

The choice applies to your whole tax for the year, not allowance by allowance. You cannot take the new regime slabs and also claim HRA. The employer's NPS contribution is one of the few items deductible in both regimes, so it does not change the comparison.

The exempt part of your HRA is the lowest of three amounts, each worked out for the year:

Exempt HRA = least of (HRA received, rent paid − 10% of salary, 50% or 40% of salary)

Salary here means basic pay plus dearness allowance that counts for retirement benefits, not your gross pay. The 50% limit applies in 8 cities: Delhi, Mumbai, Kolkata, Chennai, Bengaluru, Hyderabad, Pune and Ahmedabad. From tax year 2026-27 the Income-tax Rules, 2026 added Bengaluru, Hyderabad, Pune and Ahmedabad to the list. Everywhere else the limit is 40%.

Take a basic salary of ₹50,000 a month, HRA of ₹20,000 and rent of ₹18,000 in Bengaluru:

Here the rent test decides the exemption. Rent would need to rise to about ₹25,000 a month before the whole HRA became exempt. In the new regime the exempt amount would be zero and all ₹2,40,000 would be taxed.

The real question is whether the HRA exemption, together with your other deductions, makes the old regime cheaper. The table assumes basic pay of half the salary, HRA of 40% of basic, rent of a quarter of the salary in a metro, the full ₹1,50,000 in 80C investments, ₹25,000 of health cover and professional tax.

• Even with a large HRA exemption, full 80C and health cover, the new regime is cheaper at every one of these salaries.
• At ₹30 lakh, HRA cuts the old regime tax from ₹6,70,020 to ₹4,82,820, close to the new regime figure of ₹4,75,800.
• The last column is the gap still to close. Own NPS (up to ₹50,000) and home loan interest (up to ₹2,00,000) are the usual ways to close it.

• Your rent is high relative to your basic pay, so the exemption runs into several lakh a year.
• You also pay interest on a home loan for a house elsewhere, or contribute to NPS on your own.
• Your salary is high enough that each deduction saves tax at 30%.

If you live in your own home, pay modest rent, or earn up to ₹12.75 lakh, the new regime will almost always cost less, and you can ignore HRA paperwork altogether.

A quick test: add your exempt HRA to every other old regime deduction you will genuinely have this year. If the total falls short of the break-even amount for your salary, the old regime will cost more however carefully you document the rent. Do not raise your rent or sign a longer lease just to save tax; the extra rent always costs more than the tax it saves.

1. Keep a rent agreement and monthly rent receipts, and pay by bank transfer so there is a clear record.
2. Give your employer the PAN of your landlord if the rent is more than ₹1 lakh a year; employers ask for it before allowing the exemption.
3. Paying rent to your parents is allowed if you genuinely pay it and they show it as income in their own return.
4. If your rent is more than ₹50,000 a month, you must deduct 2% TDS on the rent (formerly Section 194-IB) and deposit it, even as a salaried tenant.
5. If you missed declaring rent to your employer, you can still claim the exemption in your return, provided you file under the old regime.