HRA exemption when you rent in Delhi, Noida or Gurugram

First, check you are in the right regime

The Income-tax Act, 2025 took effect on 1 April 2026, and the old wording "assessment year" is being replaced by "tax year" in official material. What has not changed in principle is the choice between regimes: HRA exemption exists only in the old regime. If you have opted for the new regime (the default for salaried people), your HRA is taxed like the rest of your salary and you can stop reading here.

If you are unsure which regime is better, run both. The old regime makes sense only when HRA, 80C investments, and other deductions together outweigh the new regime's lower rates. That comparison is a separate exercise; this page assumes you have already chosen the old regime for tax year 2026-27.

The three amounts, defined carefully

For HRA purposes, "salary" has traditionally meant basic pay plus dearness allowance (where it counts for retirement benefits) plus any commission fixed as a percentage of turnover. It is not your CTC and not your gross pay. That single definition is where most people's spreadsheets go wrong.

The three amounts for the year are:

1. 1Actual HRA received from your employer.
2. 2Rent actually paid minus 10% of salary.
3. 350% of salary if the house is in one of the notified metro cities, 40% otherwise.

The exemption is the smallest of the three. Anything you received above that is taxable.

Which percentage applies to your flat

Delhi has always been in the 50% group. Noida, Gurugram, Ghaziabad and Faridabad are separate cities, not "Delhi" for this purpose, and historically they sat in the 40% group. Under the new Act, the city list is set out in the Income-tax Rules, 2026, and some commentators report that the 50% list was expanded to cover more cities. We could not open the notified rules on the official portal while writing this (September 2026), so do not rely on any list you read in a blog, including this one. Open the rules on incometaxindia.gov.in and search for the house rent allowance provision before you plan around it.

A worked example: same job, two flats

Take a hypothetical learner-turned-analyst with these numbers. None of them are market figures; replace every one with your own payslip and rent agreement.

Now compare a flat in Delhi with a flat in a 40% city such as Noida, assuming the notified rules keep Noida at 40%:

The difference, ₹36,000 of taxable income, comes entirely from the third line. Note also what does not matter: whether your employer's office is in Gurugram, Noida or Connaught Place. It is the rented house that counts.

If the rent were lower, say ₹22,000 a month, line 2 would become ₹2,04,000 and would be the smallest in both cities, so the city percentage would make no difference at all. That is why you should always compute all three lines instead of assuming the metro rate helps.

The same calculation in Python

If you are learning Python for analytics, this is a good first function: three inputs, one rule, a result you can check by hand.

def hra_exemption(salary, hra_received, rent_paid, metro_rate):
    """All amounts annual. metro_rate is 0.5 or 0.4, taken from the notified rules."""
    candidates = {
        "hra_received": hra_received,
        "rent_minus_10pct": max(rent_paid - 0.10 * salary, 0),
        "pct_of_salary": metro_rate * salary,
    }
    binding = min(candidates, key=candidates.get)
    exempt = candidates[binding]
    return exempt, hra_received - exempt, binding

# Hypothetical figures from the table above
for city, rate in [("Delhi flat", 0.5), ("Noida flat", 0.4)]:
    exempt, taxable, binding = hra_exemption(600000, 300000, 336000, rate)
    print(f"{city}: exempt Rs {exempt:,.0f}, taxable Rs {taxable:,.0f}, limited by {binding}")

Running it prints an exemption of ₹2,76,000 for the Delhi flat (limited by rent minus 10%) and ₹2,40,000 for the Noida flat (limited by the percentage of salary). The binding value tells you which line to change if you want a different result: a higher rent helps only while line 2 is the limit.

Papers your payroll team will ask for

Employers apply the exemption through TDS during the year, and they need evidence. Keep these ready before the proof-submission window your HR sets, usually towards the end of the financial year:

• Rent agreement in your name, showing the address, monthly rent and landlord's name.
• Rent receipts or bank transfer records for each month. A transfer trail is easier to defend than cash receipts.
• Landlord's PAN when annual rent exceeds ₹1,00,000. If the landlord does not have a PAN, a declaration from the landlord in the prescribed format is used.
• Form 12BB (or whatever form your employer's system generates under the new rules) declaring the rent claim. Check whether the current version asks about your relationship to the landlord.

If you miss the employer deadline, you can generally still claim the exemption when you file your own return, provided you have the same papers. Your employer's figure is not final; your return is.

Situations that change the answer

• You moved mid-year from Delhi to Noida. Do the calculation month by month, or at least period by period, because salary, rent and the city percentage can all differ.
• Your rent is split with a flatmate. Only the rent you actually pay counts, and your agreement or receipts should show your share.
• You live in your own house in the same city. You cannot claim HRA exemption on rent you do not pay.
• Your employer pays no HRA. The exemption does not apply. The old Act had a separate deduction for people who receive no HRA, with its own conditions; check whether and how that carries over in the 2025 Act before assuming it does.

Where this fits in your first job

Reading a payslip and rebuilding it in a spreadsheet or in Python is one of the first things our Data Analyst programme asks learners to do with real-shaped data, because it teaches the difference between a definition and a column name. If you are weighing a Noida flat against a Delhi one for other reasons too, the PG or flat share worksheet walks through the non-tax side. And if you have two offers in hand, compare them line by line with the Noida versus Gurugram offer worksheet.

Tax rules and the city list are as of September 2026. Confirm them against the official Act and Rules before filing.