HRA Exemption Now Covers 4 More Cities Under IT Rules 2026: What Changed and Who Benefits
Quick Summary Box
| Particulars | Details |
|---|---|
| Governing Provision | House Rent Allowance exemption rules under Income-tax Rules, 2026 (replacing IT Rules, 1962) |
| Effective From | 1 April 2026 (Tax Year 2026-27 onward) |
| Old Position | 50% of salary exemption limited to Delhi, Mumbai, Kolkata, Chennai only; 40% for all other cities |
| New Position | 50% exemption band expanded to include 4 additional metro/high-cost cities |
| Applicability | Salaried individuals under the applicable tax regime claiming HRA exemption |
Why This Matters
For decades, the 50%-of-salary HRA exemption band was frozen at four metros, even as cities like Bengaluru, Hyderabad, Pune, and Ahmedabad saw rental costs rise to metro-comparable levels. Salaried employees in these cities were stuck claiming only the 40% band despite paying rents on par with — sometimes exceeding — the traditional four metros. The Income Tax Rules, 2026 corrects this by expanding the 50% exemption band to reflect current cost-of-living realities.
What Practitioners Should Check for Clients Now
Step 1 — Identify affected clients. Any salaried client based in the newly added cities who was previously claiming only the 40% HRA exemption should be flagged for a recalculation from Tax Year 2026-27 onward.
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