Published 21 October 2026
The house rent allowance on a salary slip is rarely the amount that escapes tax. The exemption is the lowest of three figures. One of them depends on the city the employee lives in, and the list of cities that earn the higher rate changed on 1 April 2026. The exemption is lost entirely in the new regime. The employer gives it during the year only on the proof the employee hands over, and that proof has its own form. Where rent passes Rs 1,00,000 in the year, the form asks for the landlord’s PAN, and from tax year 2026-27 it also asks how the employee is related to the landlord. This guide sets out the exemption, the computation and the paperwork under both Acts.
Which Act governs which year
- Financial year 2025-26 (assessment year 2026-27) and earlier. The exemption is section 10(13A) of the Income-tax Act, 1961, with rule 2A of the Income-tax Rules, 1962. The evidence goes to the employer in Form No. 12BB under rule 26C of the 1962 Rules, for tax deducted under section 192.
- Tax year 2026-27 onwards. The exemption is serial number 11 of the Table in Schedule III, given effect by section 11 of the Income-tax Act, 2025. The limits are in rule 279 of the Income-tax Rules, 2026. The evidence goes to the employer in Form No. 124 under rule 205, for tax deducted under section 392.
- Earlier years stay under the 1961 Act by section 536(2) of the 2025 Act.
When the exemption is available at all
Section 10(13A) exempts “any special allowance specifically granted to an assessee by his employer to meet expenditure actually incurred on payment of rent (by whatever name called) in respect of residential accommodation occupied by the assessee”, to the extent prescribed. Its Explanation shuts out two cases: where the accommodation occupied “is owned by him”, and where he “has not actually incurred expenditure on payment of rent”.
Schedule III serial number 11 of the 2025 Act moves the same tests into its conditions column:
- the allowance is specifically granted to meet rent for residential accommodation occupied by the assessee;
- it is exempt to the extent prescribed, having regard to the place;
- the accommodation occupied “is not owned by him”; and
- he “has actually incurred expenditure on payment of rent”.
The test of ownership looks at the accommodation the employee occupies. Neither provision mentions a house owned elsewhere. That is in contrast with the deduction for rent paid where no house rent allowance is received. Section 80GG of the 1961 Act and section 134 of the 2025 Act deny that deduction where the assessee, spouse or minor child owns a house at the place of residence or work.
Neither regime is neutral here. In the new regime the exemption is gone. Section 115BAC(2)(i) of the 1961 Act excludes section 10(13A), and section 202(2)(a)(i) of the 2025 Act excludes Schedule III serial number 11. See Old or New Regime.
The computation: least of three
Rule 2A of the 1962 Rules and rule 279(1) of the 2026 Rules take the same three figures for the “relevant period”, the part of the year in which the employee occupied the rented accommodation:
- the house rent allowance actually received;
- rent actually paid, less one-tenth of salary; and
- a percentage of salary that depends on where the accommodation is.
The exempt amount is the least of the three. The rest of the allowance is taxable salary.
“Salary” is narrow. Rule 279(2)(b) says it “includes dearness allowance, if provided for under the terms of employment, but excludes all other allowances and perquisites”. Rule 2A uses the meaning in rule 2(h) of Part A of the Fourth Schedule, which is to the same effect. Basic pay and qualifying dearness allowance make up the figure. The house rent allowance itself does not.
The metro list changed in 2026
| Year | Provision | 50 per cent of salary | 40 per cent of salary |
|---|---|---|---|
| AY 2026-27 and earlier | Rule 2A©, 1962 Rules | “Bombay, Calcutta, Delhi or Madras” | any other place |
| Tax year 2026-27 onwards | Rule 279(1)©, Table, 2026 Rules | “Mumbai, Kolkata, Delhi, Chennai, Hyderabad, Pune, Ahmedabad and Bengaluru” | any other place |
The 2026 Rules add four cities: Hyderabad, Pune, Ahmedabad and Bengaluru. Rent paid for April 2026 onwards in those cities is measured against 50 per cent of salary. Rent paid up to March 2026 is still measured against 40 per cent. Neither rule defines the cities by district or urban agglomeration. Places that are not named, such as Gurugram, Noida, Navi Mumbai and Thane, are not on either list by name.
A worked example for an employee in Pune, using the same figures in both years:
| Figure | FY 2025-26 (AY 2026-27) | Tax year 2026-27 |
|---|---|---|
| Salary (basic and qualifying DA), Rs 60,000 a month | Rs 7,20,000 | Rs 7,20,000 |
| House rent allowance received, Rs 30,000 a month | Rs 3,60,000 | Rs 3,60,000 |
| Rent paid, Rs 35,000 a month | Rs 4,20,000 | Rs 4,20,000 |
| (1) Allowance received | Rs 3,60,000 | Rs 3,60,000 |
| (2) Rent less 10 per cent of salary | Rs 3,48,000 | Rs 3,48,000 |
| (3) Percentage of salary | 40 per cent: Rs 2,88,000 | 50 per cent: Rs 3,60,000 |
| Exempt (least) | Rs 2,88,000 | Rs 3,48,000 |
| Taxable part of the allowance | Rs 72,000 | Rs 12,000 |
Where salary, allowance or rent changes in the year, or the employee moves city, each figure is taken for the period it covers. The rule is framed in terms of the “relevant period” for this reason.
What the employer asks for: Form 12BB and Form No. 124
An employer deducting tax on salary works out the year’s estimated income. To allow the exemption in that estimate, the employer needs evidence.
- Up to FY 2025-26. Rule 26C(1) of the 1962 Rules requires the employee to furnish “the evidence or the particulars of the claims … in Form No. 12BB for the purpose of estimating his income or computing the tax deduction at source”.
- From tax year 2026-27. Section 392(5)(b) of the 2025 Act obliges the employer to “obtain from the assessee the evidence or proof or particulars of prescribed claims”. Rule 205(1) of the 2026 Rules prescribes Form No. 124.
The two tables list four claims:
| Claim | Rule 26C, Form 12BB (to FY 2025-26) | Rule 205, Form No. 124 (from tax year 2026-27) |
|---|---|---|
| House rent allowance | Name, address and PAN of the landlord or landlords where aggregate rent paid during the previous year exceeds Rs 1,00,000 | Name, address and PAN of the landlord or landlords where aggregate rent paid during the tax year exceeds Rs 1,00,000, “and relationship with the landlord, if any” |
| Leave travel concession | Evidence of expenditure | Evidence of expenditure |
| Interest on a housing loan | Name, address and PAN of the lender | Name, address and PAN of the lender |
| Chapter VI-A or Chapter VIII deductions | Evidence of investment or expenditure | Evidence of investment or expenditure |
Three points follow from the text.
- The Rs 1,00,000 test is on aggregate rent for the year, and on more than one landlord taken together. At or below it, the rules do not call for the landlord’s PAN.
- The relationship column is new. It does not bar rent paid to a parent or other relative. It does ensure the employer, and through Form 16 the department, knows of the relationship. Rent paid to a relative is income of the relative under “Income from house property” in the relative’s own return. The exemption still depends on rent being “actually incurred”.
- The form serves only the employer’s deduction of tax. The exemption itself comes from section 10(13A) or Schedule III. An employee who did not hand over proof in time can still claim the exempt amount in the return. The claim then rests on the same evidence: rent receipts or bank records, the agreement, and the landlord’s PAN.
Rent that triggers TDS by the tenant
An individual tenant not liable to tax audit who pays rent above Rs 50,000 a month must deduct tax on it. Under the 1961 Act this is section 194-IB. The 2025 Act counterpart is described in TDS on Rent. The deduction is the tenant’s obligation. The employer’s house rent allowance does not change it.
Where it appears in the return
The exempt allowance appears in the return as an exemption from salary. The employer’s figure in Form 16 (Form No. 130 under the 2026 Rules) is the usual starting point. How to file ITR-1 if you live in a rented apartment and pay HRA walks through the entries for AY 2026-27 screen by screen. The employer’s own statements are covered in TDS Certificates: Form 16 and 16A.
What to have ready
- Salary breakdown for each month: basic pay, the dearness allowance that counts, and the allowance actually received. These come from salary slips or Form 16 Part B.
- The rent agreement and rent receipts, or bank statements showing the payments, for the months the accommodation was occupied.
- The landlord’s name, address and PAN where the year’s rent exceeds Rs 1,00,000, and from tax year 2026-27 the relationship with the landlord.
- The city of the accommodation for each part of the year, checked against the list for that year.
- The regime choice. In the new regime none of this is used.
In order
- The employee confirms with the employer that the old regime is intended, since the new regime allows no exemption.
- Rent particulars, and the landlord’s PAN above Rs 1,00,000, go to the employer in Form 12BB (to FY 2025-26) or Form No. 124 (from tax year 2026-27). From tax year 2026-27 the relationship with the landlord goes in too.
- The employer computes the least of the three figures and deducts tax on the rest.
- In the return, the exempt amount is checked against the rule for the year, including the four added cities from April 2026.
- Any exemption the employer did not allow is claimed in the return, on the same evidence.
The next guide, Perquisites and Form 12BA, deals with benefits an employer provides in kind rather than in cash.