Introduction

In a major relief for salaried employees, the government has expanded the list of cities eligible for higher house Rent Allowance (HRA) tax exemption. This move is expected to directly increase the take-home (in-hand) salary of many taxpayers living in high-rent urban areas.

What Has Changed in HRA Rules?

Earlier, only four metro cities qualified for the 50% HRA exemption limit:

· Delhi

· Mumbai

· Chennai

· Kolkata

Now, under the updated Income Tax Rules (effective April 1, 2026), four more cities have been added:

Newly Added Cities

· Bengaluru

· Hyderabad

· Pune

· Ahmedabad

👉 This takes the total number of cities eligible for 50% HRA exemption to 8 cities.

What Does 50% HRA Exemption Mean?

HRA exemption is calculated as the lowest of the following three:

1. Actual HRA received

2. Rent paid minus 10% of salary

3. 50% of salary (metro cities) / 40% (non-metro cities)

👉 By increasing the limit from 40% to 50%, taxpayers in these cities can now claim a higher tax-free portion of their salary.

How This Boosts Your In-Hand Salary

1. Higher Tax Exemption

With a higher cap (50% vs 40%), a larger part of your HRA becomes tax-free.

2. Lower Taxable Income

· More exemption → Less taxable salary

· Less tax → More money in hand

3. Bigger Impact for High Rent Payers

This change benefits:

· IT professionals

· Metro city employees

· Mid-to-high income earners paying significant rent

Why These 4 Cities Were Added

The inclusion of these cities is based on:

· Rapid urban growth

· High cost of living

· Rising rental prices

· Large salaried population

Cities like Bengaluru and pune have seen sharp increases in rent, making them comparable to traditional metros.

Important Condition: Old Tax Regime Only

Here’s the most crucial point:

👉 HRA exemption is available ONLY under the old tax regime

· Under the new tax regime → HRA is fully taxable

· Under the old regime → You can claim HRA benefits

So, this change is beneficial only if you opt for the old regime.

Additional Compliance Rules (2026 Update)

The government has also tightened HRA rules:

1. Mandatory Landlord Details

· Landlord’s PAN must be provided (if rent > ₹1 lakh/year)

2. New Declaration Form

· A new form (Form 124) replaces earlier declarations

3. Proper Documentation Required

· Rent agreement

· Rent receipts

· wallet PLATFORM' target='_blank' title='digital-Latest Updates, Photos, Videos are a click away, CLICK NOW'>digital payment proof preferred

Example: How You Benefit

Particulars

Before (40%)

After (50%)

Basic Salary

₹10 lakh

₹10 lakh

HRA Exemption Limit

₹4 lakh

₹5 lakh

Taxable Income

Higher

Lower

👉 Result: Lower tax + higher take-home salary

Who Gains the Most?

· Employees paying high rent

· Salaried individuals in metro-like cities

· Those continuing in the old tax regime

Conclusion

The expansion of 50% HRA exemption to Bengaluru, Hyderabad, pune, and Ahmedabad marks a significant tax relief for urban salaried professionals.

✔ Higher exemption
 ✔ Lower tax burden
 ✔ Increased in-hand salary

However, the benefit applies only under the old tax regime, making it essential to compare tax regimes carefully before filing returns.

 

Disclaimer:

The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of any agency, organization, employer, or company. All information provided is for general informational purposes only. While every effort has been made to ensure accuracy, we make no representations or warranties of any kind, express or implied, about the completeness, reliability, or suitability of the information contained herein. Readers are advised to verify facts and seek professional advice where necessary. Any reliance placed on such information is strictly at the reader’s own risk.

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Kokila Chokkanathan

07/04/2026 04:55 PM