New HRA Rules 2026: Bengaluru, Pune, Hyderabad and Ahmedabad Finally Get the 50 Percent Exemption

If you have ever filed your taxes while renting a flat in Koramangala, Baner, Gachibowli or Bopal, you already know the feeling. You are paying rent that could easily buy you a small apartment in a tier two city, and yet the tax department has spent decades treating you like you live in one. That has finally changed.

From April 1, 2026, Bengaluru, Pune, Hyderabad and Ahmedabad have been added to the list of metro cities for House Rent Allowance purposes. This means salaried employees in these four cities can now claim HRA exemption at 50 percent of their salary instead of the old 40 percent limit. It sounds like a small percentage shift on paper. In practice, for someone paying serious rent in a high cost city, it can mean a genuinely noticeable drop in taxable income.

This post breaks down exactly what changed, why it took this long, how to calculate your new exemption, what documentation you now need, and where people usually trip up while claiming it.

New HRA Rules 2026: What Exactly Changed

Under the old rule, only four cities in India were treated as metros for HRA calculation: Delhi, Mumbai, Kolkata and Chennai. If you lived and worked in any of these four, your HRA exemption was calculated using 50 percent of your basic salary as one of the limits. Every other city in the country, no matter how expensive the rent actually was, fell under the 40 percent bracket.

Bengaluru is India’s biggest tech hub. Hyderabad houses entire campuses of global IT and pharma companies. Pune has one of the largest salaried workforces in western India. Ahmedabad has grown into a major business and finance centre. Yet all four were stuck on the same 40 percent cap as a small town, purely because a rule written decades ago never got updated as these cities grew.

The Income Tax Rules 2026, notified in final form by the CBDT on March 20, 2026 and effective from April 1, 2026, finally fix this. Under Rule 279 of the new rules, the metro city list for HRA purposes has expanded from four cities to eight. Bengaluru, Pune, Hyderabad and Ahmedabad now sit alongside Delhi, Mumbai, Kolkata and Chennai, all eligible for the 50 percent exemption limit. Every other city in India continues at 40 percent.

New HRA Rules 2026 : Why This Took So Long

The 50 percent versus 40 percent split for HRA has existed since the original Income Tax Act was written way back in 1961. At the time, Delhi, Mumbai, Kolkata and Chennai genuinely were the country’s four major economic centres, and rents there were significantly higher than anywhere else. Everywhere else in India was, by comparison, cheaper to live in.

That assumption stopped being accurate a long time ago, but the rule never caught up. Bengaluru rents in areas like Indiranagar or HSR Layout have matched or beaten large parts of Chennai and Kolkata for years. Hyderabad’s Hitech City and Gachibowli belt has seen similar rent inflation thanks to the IT boom. Pune and Ahmedabad followed the same pattern as manufacturing, IT and finance jobs moved in. Salaried professionals in these cities were quietly losing out on a tax benefit that logically should have applied to them, simply because the list of qualifying cities never got revised.

The Income Tax Act, 2025 replacing the old 1961 Act gave the government a natural opportunity to correct several outdated provisions in one go, and this HRA city list was one of them.

New HRA Rules 2026 : How HRA Exemption Is Actually Calculated

Before getting into the new numbers, it helps to understand how HRA exemption works in the first place. Under Section 10(13A) of the Income Tax Act, 1961, the exempt portion of your HRA has always been the lowest of these three amounts. A quick note on citation: the Income Tax Act, 2025 has reorganised the old Section 10 exemptions, and different professionals currently describe this either as a renumbered section or as an entry moved into a schedule of the new Act. The underlying rule and the amount you can claim have not changed because of this, only how it may eventually be cited in forms and software. If you want the exact current citation for your own filing, it is worth a quick check with your CA rather than relying on any one blog, including this one.

First, the actual HRA you receive from your employer during the year. Second, the rent you actually pay minus 10 percent of your salary, where salary here means basic pay plus dearness allowance, and commission calculated as a fixed percentage of turnover if that applies to you. Third, either 50 percent or 40 percent of your salary, depending on which city you live in.

Whichever of these three numbers is the smallest becomes your tax free HRA. The rest of your HRA, if any, gets added to your taxable income like any other salary component.

Here is where the new rule actually matters. For people in Bengaluru, Pune, Hyderabad and Ahmedabad paying high rent relative to their salary, the third limit, the city percentage cap, was often the one holding back their exemption. Moving that cap from 40 percent to 50 percent means more of their rent now clears the test, and a larger chunk of their HRA becomes tax free.

New HRA Rules 2026: A Real Example

Say someone working in Bengaluru has a basic salary of sixty thousand rupees a month, receives HRA of thirty five thousand rupees a month, and pays rent of forty thousand rupees a month, which is fairly normal for a decent two bedroom flat in a good locality today.

The three numbers to compare are the actual HRA received, which is thirty five thousand, the rent paid minus 10 percent of salary, which works out to forty thousand minus six thousand, or thirty four thousand, and the city percentage limit.

Under the old 40 percent rule, that third number was twenty four thousand rupees a month, and since it was the smallest of the three, twenty four thousand was the exempt amount. Eleven thousand rupees of HRA every month was taxed on top of that.

Under the new 50 percent rule, the city limit rises to thirty thousand rupees a month. That is still the smallest of the three figures, so it becomes the new exempt amount, and only five thousand rupees a month stays taxable instead of eleven thousand. Over a full year, that is a difference of seventy two thousand rupees in taxable income, which at a thirty percent tax bracket works out to a real saving of a little over twenty thousand rupees in tax, without the person changing a single thing about how they live or what they pay in rent.

The exact numbers will obviously vary depending on your own salary, rent and HRA structure, and this example only plays out this way because the city percentage limit stays the smallest of the three figures both before and after the change. If your rent is low enough that the rent based calculation was already your binding constraint, the new 50 percent cap will not move your exemption at all, because a higher ceiling on a limit that was never the tightest one changes nothing. This benefit helps most when your rent and HRA are both high relative to your basic salary.

New HRA Rules 2026: The Catch Nobody Talks About Enough

Here is the part that genuinely matters, and it gets buried in a lot of the coverage around this change. HRA exemption, old rate or new rate, is only available if you are filing under the old tax regime.

If you have opted for the new tax regime, which has become the default option and offers lower slab rates in exchange for giving up most deductions, HRA exemption simply does not apply to you at all. It does not matter whether you live in Bengaluru or a small town, the entire HRA component of your salary is fully taxable under the new regime.

So before you get excited about this change, the real question is whether the old regime, with this improved HRA benefit added in, actually works out cheaper for you than the new regime’s lower slabs. For someone with high rent, meaningful Section 80C investments, health insurance premiums and maybe a home loan, the old regime with the new 50 percent HRA cap can genuinely tip the scales back in its favour. For someone with low rent and few other deductions, the new regime is often still the better deal even with this change. There is no universal answer here. It depends entirely on your own numbers, and it is worth actually running both calculations rather than assuming one is always better.

New HRA Rules 2026: New Documentation Requirements You Cannot Ignore

Along with expanding the city list, the Income Tax Rules 2026 also carried forward and tightened some of the paperwork around HRA claims, mainly to stop people from gaming the system.

The landlord PAN requirement itself is not new. It has applied for a while now, if your annual rent crosses one lakh rupees, which is extremely common in these four cities given current rent levels, you are required to provide your landlord’s PAN details when claiming the exemption. If your landlord does not have a PAN or refuses to share it, you will need a declaration from them instead, though this route tends to invite more scrutiny. What has changed under the 2026 rules is that this requirement continues without dilution even as the exemption amount itself goes up, so more people claiming a bigger exemption will also mean more people needing to produce this paperwork.

The genuinely new piece is around disclosure of your relationship with the landlord. From this financial year, if you are paying rent to a family member, a parent for instance, you now need to be upfront about that relationship while claiming the exemption. Paying rent to parents has always been allowed as long as it is a genuine arrangement, but the reporting expectations around it have become stricter. You need an actual rent agreement, the rent needs to move through a bank transfer or UPI rather than cash, and your parent needs to declare that rental income in their own return. You also cannot claim this if you jointly own the property you are supposedly renting from them.

Cash rent payments in general are a bad idea going forward. Keep everything on record through bank transfers, retain your rent receipts, and make sure your rental agreement is properly documented. The tax department’s ability to cross check this information has only gotten stronger with each passing year, and an HRA claim that cannot be backed up with a clean paper trail is one of the more common reasons people get a notice.

What If Your Employer Has Not Updated Payroll Yet

A fair number of companies, especially smaller ones, may not have updated their payroll systems to reflect the new 50 percent limit for these four cities right away. If your Form 16 or payslips still show HRA computed at the old 40 percent rate, you do not have to accept that as final.

You can still claim the correct exemption, based on the new 50 percent limit, directly while filing your income tax return, regardless of what your employer’s payroll system calculated. The return filing process allows you to compute HRA exemption independently using the actual rules in force for that tax year. It is worth double checking this yourself rather than assuming your company’s payroll team has already made the switch.

Who This Change Actually Helps

This is not a blanket win for every salaried person in these four cities. It mainly benefits people who tick most of these boxes: they pay meaningful rent relative to their salary, they are still filing under the old tax regime, and their previous HRA exemption was being capped by the 40 percent city limit rather than the rent based calculation.

If your rent is relatively low compared to your salary, the rent based limit was probably already your binding constraint, and this change will not move the needle much for you. If you have already shifted to the new tax regime, this change simply does not apply to you at all. And if you are self employed or do not receive HRA as part of your salary structure, you were never eligible for Section 10(13A) exemption in the first place. There is a separate, much smaller benefit for that group under Section 80GG, and this change has no bearing on it.

My Take

I think this is one of those tax changes that should have happened years earlier and somehow didn’t, mostly because these things move at the pace of government notification cycles rather than the pace of actual rent inflation. Anyone who has apartment hunted in Bengaluru or Hyderabad in the last few years knows the gap between what these cities cost to live in and what the old tax rules assumed they cost was getting a little absurd.

What I’d actually push people to do with this news is not just celebrate a marginally better HRA number, but use it as a trigger to properly compare the old and new tax regimes for their specific situation this year. A lot of people picked the new regime a couple of years ago because it was simpler and the slabs looked good on paper, and then never revisited that decision as their salary, rent and other deductions changed. This is a good year to actually run both numbers side by side instead of going with whatever you defaulted to last time.

Disclaimer

This article is written for general informational purposes only and reflects the rules notified for Financial Year 2026-27 as understood at the time of writing. It is not tax advice, legal advice or financial advice, and it should not be treated as a substitute for consulting a qualified chartered accountant or tax professional who can review your specific salary structure, rent arrangement and overall financial situation. Tax rules, exemption limits and compliance requirements can be revised or clarified further by the Central Board of Direct Taxes, so please verify the latest applicable provisions through official government sources or a qualified professional before making any tax filing or planning decisions based on this content.

New HRA Rules 2026: Frequently Asked Questions

Which cities now qualify for the 50 percent HRA exemption? Eight cities qualify for the 50 percent HRA exemption limit from Financial Year 2026-27 onward: Delhi, Mumbai, Kolkata, Chennai, Bengaluru, Pune, Hyderabad and Ahmedabad. All other cities and towns in India continue to fall under the 40 percent limit.

From when is this new HRA rule applicable? The new rule applies from April 1, 2026, which is the start of Financial Year 2026-27, under the Income Tax Rules 2026 notified by the CBDT. It does not apply retrospectively to earlier financial years.

Does this apply if I am on the new tax regime? No. HRA exemption under Section 10(13A), whether calculated at 40 percent or 50 percent, is available only to taxpayers who choose the old tax regime. If you are on the new tax regime, your entire HRA is taxable regardless of which city you live in.

I work for a company headquartered in Mumbai but I am based in Bengaluru. Which limit applies to me? The city that matters is the city you actually reside and work in, not where your company is headquartered. If your place of employment and residence is Bengaluru, you are eligible for the 50 percent limit.

Do satellite towns or suburbs around these four cities also qualify? This depends on how the notified rule defines the boundaries of each city for HRA purposes. Areas that fall within the municipal limits of Bengaluru, Pune, Hyderabad or Ahmedabad are expected to qualify, but locations that are technically separate towns or districts just outside these cities may not automatically be covered. If you live on the outskirts, it is worth checking the specific notification or asking your payroll or tax advisor to confirm your exact classification.

Can I claim HRA exemption if I pay rent to my parents? Yes, this has always been allowed as long as it is a genuine arrangement. You need an actual rent agreement, rent must be paid through a bank transfer rather than cash, your parents need to declare that rental income in their own income tax return, and you cannot claim this if you jointly own the property.

Is landlord PAN mandatory for claiming HRA now? This is not a new requirement introduced in 2026, it has applied for several years already. If your annual rent exceeds one lakh rupees, which is common in these four cities, you are required to provide your landlord’s PAN when claiming the exemption. If the landlord does not have a PAN, a declaration is typically required instead, though this may attract closer scrutiny during assessment. What is new from this financial year is the requirement to disclose your relationship with the landlord, which matters mainly if you are renting from a family member.

My employer has not updated my HRA calculation to 50 percent yet. What should I do? You can still claim the correct exemption directly while filing your income tax return, using the applicable 50 percent limit, even if your Form 16 or payslips reflect the older 40 percent calculation. It is a good idea to also flag this with your payroll or HR team so future payslips are corrected.

Will this change actually make the old tax regime better than the new tax regime for me? It depends entirely on your individual numbers. This change improves the old regime’s HRA benefit specifically for people in these four cities with high rent relative to salary, but whether the old regime beats the new regime overall depends on your total deductions, including Section 80C investments, health insurance premiums and any home loan interest. It is worth calculating both regimes freshly this year rather than assuming your previous choice still holds.

Does this change affect self employed individuals or freelancers? No. HRA exemption applies only to salaried employees who receive HRA as part of their salary structure. Self employed individuals, and salaried people whose salary does not include an HRA component, may instead claim a much smaller deduction under Section 80GG, capped at the lowest of five thousand rupees a month, 25 percent of adjusted total income, or rent paid minus 10 percent of adjusted total income. This rule change does not affect Section 80GG in any way.

Is there any upper limit on how much HRA I can claim as exempt? There is no fixed rupee ceiling written into the law itself. Your exemption is simply the lowest of the three calculation methods described earlier, actual HRA received, rent paid minus 10 percent of salary, or the applicable city percentage of your salary. The city percentage change from 40 to 50 percent is what raises the ceiling for eligible taxpayers in these four cities.