HRA 50% exemption extended to four new cities under Rules 2026 — full list

• HRA 50% Exemption Extended to Four New Cities Under Rules 2026

> Quick update: From 1 April 2026, Bengaluru, Pune, Hyderabad and Ahmedabad qualify for the higher 50% HRA salary ceiling—a benefit earlier limited to Delhi, Mumbai, Chennai and Kolkata.

For salaried employees paying rent, House Rent Allowance (HRA) can make a meaningful difference to taxable income. Under the Income-tax Rules, 2026, four high-rent cities have been added to the list of locations eligible for the higher 50% HRA exemption ceiling.

The change is especially relevant for employees under the old tax regime who receive HRA as part of their salary and live in rented accommodation.

✨ What has changed?

Until 31 March 2026, the 50% ceiling applied only to four cities: Delhi, Mumbai, Chennai and Kolkata. Employees in other cities generally used the 40% ceiling in the HRA calculation.

From 1 April 2026, the higher ceiling extends to four more cities:

| 🏙️ Newly added cities | HRA ceiling from 1 April 2026 |

|—|—:|

| Bengaluru | 50% of eligible salary |

| Pune | 50% of eligible salary |

| Hyderabad | 50% of eligible salary |

| Ahmedabad | 50% of eligible salary |

📍 Full list: Cities eligible for the 50% HRA ceiling

| Category | Cities |

|—|—|

| Existing eligible cities | Delhi, Mumbai, Chennai, Kolkata |

| Newly added in 2026 | Bengaluru, Pune, Hyderabad, Ahmedabad |

| Total | 8 cities |

Employees residing in cities other than these eight ordinarily continue with the 40% of eligible salary ceiling for HRA calculations.

> Important: This is not a flat 50% tax exemption. The final exempt HRA amount is the lowest of the amounts prescribed under the HRA formula.

🧮 How is HRA exemption calculated?

For an eligible salaried employee, the exempt portion of HRA is the lowest of:

1. Actual HRA received;

Rent paid minus 10% of eligible salary; or

3. 50% of eligible salary for the eight listed cities, or 40% for other cities.

In general, eligible salary includes basic salary and applicable dearness allowance. The precise calculation can vary based on the structure of an employee’s compensation.

Simple illustration

Assume an employee living in Bengaluru has:

| Particular | Annual amount |

|—|—:|

| Eligible salary | ₹12,00,000 |

| HRA received | ₹5,40,000 |

| Annual rent paid | ₹4,80,000 |

The calculation would be:

• Actual HRA received: ₹5,40,000
• Rent paid less 10% of salary: ₹4,80,000 − ₹1,20,000 = ₹3,60,000
• 50% of eligible salary: ₹6,00,000
• HRA exemption available: ₹3,60,000, being the lowest of the three amounts.

The 50% ceiling matters when it is the limiting component in the calculation. It does not automatically make half of a person’s salary tax-free.

👤 Who can benefit from the new HRA city list?

The higher ceiling can benefit you if all or most of the following apply:

• You are a salaried employee;
• Your salary includes an HRA component;
• You live in rented accommodation;
• Your place of residence is Bengaluru, Pune, Hyderabad or Ahmedabad;
• You opt for the old tax regime; and
• Your rent and HRA levels make the 40% versus 50% ceiling relevant to your calculation.

Employees using the new tax regime generally cannot claim the usual HRA exemption. Before choosing a regime, compare the tax payable under both options based on your salary, HRA, rent, deductions and other exemptions.

📄 Documents to keep ready

A compliant HRA claim should be supported by genuine records. Keep:

• Rent agreement;
• Monthly rent receipts;
• Payment proof, such as bank transfers;
• Landlord’s name and address;
• Landlord’s PAN where required by your employer’s payroll process; and
• Details of any relationship with the landlord, where applicable.

Claiming HRA without actually paying rent, or using unsupported rent receipts, may create tax and compliance risks.

✅ What should employees do now?

If you live in one of the four newly included cities:

1. Check whether your employer has updated its payroll and HRA declaration process.

2. Submit accurate rent details and supporting documents.

3. Compare the old and new tax regimes before making your annual tax declaration.

4. Keep rent-payment evidence throughout the financial year—not only at the time of filing your return.

Bottom line

The 2026 change expands the 50% HRA salary ceiling to eight cities: Delhi, Mumbai, Chennai, Kolkata, Bengaluru, Pune, Hyderabad and Ahmedabad. It may reduce taxable salary for eligible renters under the old tax regime, but the benefit depends on the full HRA formula and individual salary structure.

This article is for general information only and is not tax advice. Consult a chartered accountant or tax professional for advice based on your individual circumstances.

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