The Income-tax Rules, 2026 have widened the list of cities where 50% of salary counts towards your house rent allowance exemption. Along with Delhi, Mumbai, Kolkata and Chennai, the list now includes Bengaluru, Hyderabad, Pune and Ahmedabad. The change applies to salary for tax year 2026-27 onwards — returns for FY 2025-26 still use the 40% limit for these four cities.
HRA exemption is available only in the old regime. If you are in the new regime, this change does not affect you.
How the exemption works
The tax-free part of your HRA is the lowest of three amounts:
- the HRA you actually received;
- the rent you paid, minus 10% of your salary;
- 50% of salary if you live in one of the eight cities, 40% anywhere else.
"Salary" here means basic pay, plus dearness allowance if it counts for retirement benefits, plus any commission fixed as a percentage of turnover.
An example from Bengaluru
Basic salary ₹60,000 a month, HRA ₹30,000 a month, rent ₹35,000 a month — so for the year, salary ₹7,20,000, HRA ₹3,60,000 and rent ₹4,20,000.
| Limit | FY 2025-26 (40%) | Tax year 2026-27 (50%) |
|---|---|---|
| HRA received | ₹3,60,000 | ₹3,60,000 |
| Rent less 10% of salary | ₹3,48,000 | ₹3,48,000 |
| Percentage of salary | ₹2,88,000 | ₹3,60,000 |
| Tax-free HRA | ₹2,88,000 | ₹3,48,000 |
₹60,000 more is exempt. In the 30% slab that is about ₹18,700 less tax, including cess.
Points to watch
- Rent above ₹1 lakh a year — give your employer your landlord's PAN.
- Renting from a parent is allowed if the arrangement is genuine: rent actually paid, ideally by bank transfer, with an agreement, and the parent showing the rent as income.
- No HRA in your salary? A separate, smaller deduction for rent paid may apply instead.
- Regime check — a bigger HRA exemption may tip the balance towards the old regime for some people. Run both before you decide.
This article is general information based on the law as it stood on 18 Sep 2026. It is not advice for your situation — rules and dates change, and the right answer depends on your facts. Speak to us before acting on it.