HRA Exemption: A Worked Example, Metro vs Non-Metro

HRA exemption (available under the Old Regime, if you pay rent) uses a different rate depending on where you live — 50% of Basic for the 8 designated metro cities, 40% everywhere else. That 10-point difference is worth more than it sounds. Here's a real comparison.

The setup

Same person, same ₹18L CTC, same ₹5.04L/year in rent — the only thing that changes is whether the city qualifies as one of the 8 metros (Delhi, Mumbai, Kolkata, Chennai, Bengaluru, Hyderabad, Pune, Ahmedabad) or not.

What the gap actually costs

The higher metro-city exemption means less of this person's income is taxable — working out to ₹22.46K less income tax for the year in this example, purely from the city classification, with nothing else about the salary changing.

How the exemption is actually calculated

HRA exemption is the smallest of three numbers: the HRA you actually receive, your rent paid minus 10% of Basic, and 50% (metro) or 40% (non-metro) of Basic. Because it's always the smallest of the three, simply receiving a large HRA component doesn't guarantee a large exemption — the rent you actually pay has to keep pace with it.