HRA 50% Exemption Extended to Bengaluru, Hyderabad, Pune, and Ahmedabad: Key Tax Benefits for Salaried Employees Under Old Regime
Published: March 30, 2026 | Updated: March 30, 2026, 12:08 pm IST
In a significant development for salaried professionals paying high rents in India’s rapidly growing urban centers, the government is expanding the House Rent Allowance (HRA) exemption limits under the old income tax regime. Effective April 1, 2026, the 50% HRA exemption cap, previously applicable only to metropolitan cities—Delhi, Mumbai, Chennai, and Kolkata—will now also extend to Bengaluru, Hyderabad, Pune, and Ahmedabad.
What Does This Mean for Salaried Employees?
This change is poised to provide a meaningful “secret hike” in take-home pay for thousands of mid-to-high income earners in these cities, where rental costs have surged substantially over recent years. The revision bridges the long-standing gap between escalating housing costs and the relatively lower tax relief thresholds previously available.
A tax expert explained to NDTV, “Many individuals had the capacity to claim a higher exemption but were restricted due to the lower threshold. This change now allows them to utilize their eligible HRA amount more fully.”
How Is HRA Exemption Calculated?
Under the old tax regime, tax exemption on HRA is computed as the lowest amount among three criteria:
- Actual HRA received from the employer.
- 50% of basic salary (basic + Dearness Allowance, DA) if residing in a metro city (including the newly added cities), or 40% if living in a non-metro city.
- Rent paid minus 10% of salary (basic + DA).
For example, if an employee in Bengaluru receives an HRA close to 50% of their basic salary and pays substantial rent, their tax exemption amount will increase, reducing their taxable income and enhancing disposable income.
Who Benefits the Most?
- The expanded exemption primarily benefits salaried employees under the old tax regime who have structured their HRA component close to 50% of their basic salary and incur high rental expenses.
- The incremental tax savings for eligible taxpayers could range from â‚ą60,000 to â‚ą1.2 lakh annually, depending on rent levels and salary.
- It is notably not applicable under the new tax regime, which offers lower rates but fewer exemptions.
Lower-income taxpayers or those with fewer deductions might continue to find the new tax regime more advantageous due to its simplicity and reduced tax rates.
Compliance and Documentation: Stricter Norms Ahead
The government is also tightening compliance to ensure proper claim substantiation. Taxpayers will be required to:
- Disclose relationships with their landlords clearly on income tax returns.
- Maintain adequate documentation, especially when rent is paid to family members, to avoid suspicion or denial of claims.
- Prepare for increased scrutiny by tax authorities as verification processes become more robust.
Annual Review: Old vs. New Tax Regime
Tax experts advise salaried individuals to conduct an annual break-even analysis to decide whether to remain in the old tax regime or switch to the new regime. Factors influencing this decision include:
- Amount of rent paid.
- HRA received.
- Other applicable deductions.
- Overall tax liability under each regime.
Choosing the appropriate regime each year can maximize tax savings and optimize take-home pay.
Summary of HRA Exemption Under Old Tax Regime:
| Parameter | Description |
|---|---|
| Applicable Cities | Delhi, Mumbai, Chennai, Kolkata, Bengaluru, Hyderabad, Pune, Ahmedabad |
| Exemption Limit | 50% of basic salary (metro cities), 40% for others |
| Calculation | Lowest of (1) Actual HRA received, (2) 50%/40% of salary, (3) Rent paid minus 10% of basic salary |
| Eligibility | Salaried employees with rent payments under old tax regime |
What Should Employees in These Cities Do?
- Review their salary structure and rent payments.
- Calculate potential tax savings under the revised HRA exemption.
- Maintain complete rent receipts and documentation.
- Assess landlord relationship disclosures to ensure compliance.
- Consult a tax advisor to determine if staying under the old regime offers benefits over the new tax regime.
The extension of the HRA exemption cap represents a timely relief for salaried employees faced with rising urban rents in key Indian cities, enabling them to legally optimize their tax liabilities and increase net income.
For more detailed guidance on HRA calculations and tax filing, visit the official income tax portal or consult certified tax professionals.
Reporting by NDTV News Desk
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