How is HRA exemption calculated for employees in metro vs non-metro cities?

House Rent Allowance exemption under the Income Tax Act is the least of three amounts: the actual HRA received; 50% of basic salary (plus DA) for employees living in metro cities or 40% for non-metros; and the rent actually paid minus 10% of basic salary (plus DA). The metro-versus-non-metro distinction only changes the second figure — 50% versus 40% of basic.

For this purpose, the recognised metro cities are Delhi, Mumbai, Kolkata, and Chennai, which qualify for the higher 50% limit; all other cities use 40%. The exemption applies only if the employee actually pays rent and receives HRA as part of salary, and it is available under the old tax regime. Employees should retain rent receipts and, where rent is high, the landlord’s PAN, to support the claim.