How is House Rent Allowance (HRA) exemption calculated?

How is House Rent Allowance (HRA) exemption calculated?

Employees who live in rented house can claim HRA exemption to reduce their Income Tax under Section 10(13A).  HRA is either fully or partially exempt.  HRA exemption is minimum of below:
  1. The actual HRA received
  2. Rent paid reduced by 10% of salary
  3. 50% of salary (if you live in a metro city), or 40% of salary (if you live in a non-metro city)
Note: Salary for the purpose of HRA exemption is basic salary and Dearness Allowance (DA)
If the result is a negative value, it will be considered as nil value and therefore the negative HRA is totally taxable.