For years, a software engineer paying rent in Bengaluru got a smaller tax break than a colleague doing the same job in Chennai. That changed on 1 April 2026. Under the Income-tax Rules, 2026, the 50% HRA exemption limit now covers eight cities instead of four. This guide explains how HRA exemption is calculated, what the new metro list means for your take-home pay, and the rules you must follow to claim it.
The New 50% HRA City List
| Cities | Up to FY 2025-26 | From FY 2026-27 |
|---|---|---|
| Delhi, Mumbai, Kolkata, Chennai | 50% | 50% |
| Bengaluru, Hyderabad, Pune, Ahmedabad | 40% | 50% |
| Noida, Gurugram, Jaipur, Lucknow, Kochi and all others | 40% | 40% |
The change applies to salary earned from April 2026. Your employer should already be using the 50% limit for monthly TDS this year. For the return you file for FY 2025-26, the old four-city list still applies.
How HRA Exemption Is Calculated
The exempt part of your House Rent Allowance is the lowest of three amounts:
Exempt HRA = min( Actual HRA, Rent − 10% of salary, 50% or 40% of salary )
"Salary" means Basic + DA (the part of DA that counts for retirement benefits) + commission paid as a fixed percentage of sales. It does not include HRA, special allowance, bonus or perquisites. The rest of your HRA is taxable and added to your income.
Worked Example: Riya in Bengaluru
Riya's monthly basic salary is ₹40,000, her HRA is ₹20,000 and she pays ₹25,000 rent in Bengaluru. For a full year:
- Actual HRA: ₹20,000 × 12 = ₹2,40,000
- Rent − 10% of salary: (₹25,000 − ₹4,000) × 12 = ₹2,52,000
- 50% of salary: ₹20,000 × 12 = ₹2,40,000
Her exemption is ₹2,40,000 – all of her HRA. In FY 2025-26, the third limit was only 40% of salary (₹1,92,000), so ₹48,000 of her HRA was taxable. In the 30% slab plus 4% cess, the new rule saves Riya about ₹14,976 a year.
How Much Will You Save?
The gain depends on your salary. The chart below shows the yearly exemption in the four newly added cities for different basic salaries, assuming HRA is 50% of basic and rent is 60% of basic:
| Monthly basic | Extra exemption a year | Tax saved (20% slab) | Tax saved (30% slab) |
|---|---|---|---|
| ₹30,000 | ₹36,000 | ₹7,488 | ₹11,232 |
| ₹40,000 | ₹48,000 | ₹9,984 | ₹14,976 |
| ₹60,000 | ₹72,000 | ₹14,976 | ₹22,464 |
| ₹80,000 | ₹96,000 | ₹19,968 | ₹29,952 |
| ₹1,00,000 | ₹1,20,000 | ₹24,960 | ₹37,440 |
Tax saved includes 4% health and education cess. If your rent is low, the "rent − 10%" limit may still be the lowest and the new rule will not change anything for you.
How Your Rent Changes the Exemption
Paying more rent increases the exemption only up to a point. Once "rent − 10% of salary" passes your actual HRA (or the 50% limit), extra rent gives no further tax benefit. And if your rent is less than 10% of your salary, the exemption is zero.
HRA Under the New Tax Regime
None of this applies if you choose the new tax regime, which is the default. Under it, HRA is fully taxable – but slab rates are lower and the standard deduction is higher. As a rough rule, the old regime starts to win when your HRA exemption plus other deductions (80C, 80D, home loan interest) are large. The wider metro list tips the balance towards the old regime for many renters in the four new cities. Run both regimes in our income tax calculator before you tell your employer which one you want.
Rules and Documents for Claiming HRA
- Rent receipts with the landlord's name, address, amount, period and signature. Paying by bank transfer or UPI gives you a clean trail.
- Landlord's PAN is required if your rent is more than ₹1 lakh a year (about ₹8,333 a month). If the landlord has no PAN, a signed declaration is needed.
- A rent agreement is not always demanded by employers but is strong proof if the tax department asks.
- Rent to parents is allowed if they own the property and declare the rent as income. Rent to your spouse is generally not accepted.
- You cannot claim HRA for a house you own and live in. You can, however, claim both HRA and home loan benefits if your own house is in another city or you genuinely live elsewhere for work.
- If you shifted cities during the year, calculate the exemption separately for each period.
- Missed submitting proofs to your employer? You can still claim the correct exemption in your income tax return.
What If You Don't Get HRA?
Self-employed people and employees whose salary has no HRA component can claim a deduction for rent under section 80GG of the old regime, subject to its own limits and a declaration in Form 10BA. The amount is usually smaller than a normal HRA exemption, so if you can, ask your employer to include HRA when your salary is restructured.
Frequently Asked Questions
Which cities get 50% HRA exemption in 2026?
From FY 2026-27, Delhi, Mumbai, Kolkata, Chennai, Bengaluru, Hyderabad, Pune and Ahmedabad get the 50% limit. All other cities get 40%.
From when does the new HRA city list apply?
From 1 April 2026, so it applies to salary for FY 2026-27. For FY 2025-26 returns, Bengaluru, Hyderabad, Pune and Ahmedabad still use the 40% limit.
How do I calculate HRA exemption?
Take the lowest of the actual HRA, rent paid minus 10% of basic + DA, and 50% (metro) or 40% (non-metro) of basic + DA. That amount is exempt; the rest of the HRA is taxable.
Is HRA exempt in the new tax regime?
No. HRA exemption is available only in the old tax regime.
Do I need my landlord's PAN for HRA?
Yes, if your yearly rent is more than ₹1 lakh. Below that, rent receipts are enough.
Can I claim HRA without rent receipts?
Employers usually accept a declaration if rent is up to ₹3,000 a month. Above that you need receipts, and bank transfer records make the claim safer if questioned.
Disclaimer: This article reflects the Income-tax Rules, 2026 as reported in October 2026. Tax rules change, and your situation may differ. It is general information, not tax advice – check with a chartered accountant before filing.