Section 14(10) of the Income Tax Act 2025- House Rent Allowances, Exemption, Calculation and New Metropolitan Cities.

 Section 14(10) of the Income Tax Act 2025 mentions provisions of  HRA. The good part is that the core formula has not changed. We can still calculate based on the previous three-condition rule. Four new cities have been added to the list of metropolitan cities qualifying for the higher 50% exemption rule. The provisions of the Income Tax Act 1961, would be applicable for FY 2026. 

If you live in Bangalore, Pune, Hyderabad, or Ahmedabad, your HRA exemption ceiling has increased from 40% to 50% of your basic salary. 

What is Section 14(10) of the Income Tax Act, 2025?

Under Section 14(10) of the Income Tax Act, 2025, there is a partial exemption on House Rent Allowance (HRA) received by a salaried employee. If your employer pays you HRA as part of your salary, a portion of that HRA is not taxable; it is exempt under Section 14(10), as mentioned below.

Who is eligible to claim the HRA exemption as per Section 14(10)?

Section 14(10) applies only to salaried persons; the conditions are mentioned below

1. You must be a salaried employee
2. HRA must be part of your salary.
3. You must actually pay rent 
4. You must not own a house in the city where you work
5. You must opt for the old tax regime 

How are HRA exemptions calculated as per Section 14(10)?

The exemption under section 14(10) is always at least the following three amounts.

List of HRA exemptions FY 2026-27

Section 14(10) HRA exemption Example 

Example 1: Salaries of Employees in Bengaluru

Varun is a software engineer located in Bangalore with the following salary details. 

As per Section 14(10) HRA exemption would be as per 

Condition 1 Actual HRA received =3,60,000

Condition 2 Rent Paid-10% of salary =3,00,000-(10% of 8,40,000)=3,00,000-84,000=2,16,000

Condition 3 (50% of salary- Bangalore is now Metro ) 50%x 8,40,000= 4,20,000

The minimum of the three = 2,16,000

Example 2: Salaries of Employees in a Non-Metropolitan City

Shreya works in Jaipur, basic: 50,000, 

DA:5000, 

HRA received 18,000 monthly

Rent Paid 15,000 per month,

 Annual figures: Salary (Basic+DA)=6,60,000 

HRA+ 2,16,000

Rent+1,80,000

 Condition 1 2,16,000

Condition 2 1,80000-(10% x 6,60,000)=1,80,000-6600=1,14,000

Condition 3 (40% of salary-non metro) 40%x 6,60,00+2,64,000

Minimum of the three= 1,14,000 is the Exempt HRA= 1,14,000

Taxable HRA=1,02,000

What are the documents that are required as per Section 14(10)?

1. Rent Receipts 
2. Rental Agreement 
3. Landlord’s PAN Card
4. Form 124 under the New Income Tax Act, 2025
5. Bank statement 

How to Report Section 14(10) HRA exemption in your ITR?

1. Choose the old tax regime 
2. Check Form 130
3. Open the salary schedule in your ITR
4. Enter the exempt HRA 
5. Verify Pre-filled Data
6. Submit verification within due date

What are the common mistakes when applying for an HRA exemption?

1. Using Gross salary instead of basic + DA in the formula
2. Claiming HRA despite paying rent to spouse 
3. Forgetting to collect the PAN of the landlord
4. Not mentioning the HRA exemption while filing ITR 
5. Choosing a new regime, but expecting HRA exemptions