8 Major Cities Offer HRA Exemption of Up to 50% Starting April 2026
The new financial year starting April 1, 2026, brings significant tax relief for salaried employees in eight major Indian cities with HRA exemptions up to 50%. This broadened rule aims to address rising living costs and benefit a wider middle class.
Highlights
- •Eight major Indian cities now offer 50% HRA exemption
- •Four new cities: Bengaluru, Hyderabad, Pune, Ahmedabad are added for better exemptions
- •New tax benefits include kids' education, free meals, and foreign travel expenses reductions
- •Regulations tightened through tech-based measures to prevent misuse
Starting from April 1, 2026, with the new financial year, significant changes are being made to the house rent allowance (HRA) rules for salaried taxpayers. As per the Income Tax Rules 2026, announced by the Central Board of Direct Taxes (CBDT), the list of cities where employees can claim HRA up to 50% of their basic salary has been expanded from four major metropolitan cities to eight.
New Cities with Enhanced HRA Exemption
Four additional cities have joined Delhi, Mumbai, Kolkata, and Chennai as beneficiaries: Bengaluru, Hyderabad, Pune, and Ahmedabad. In these new metros, employees can now claim half (50%) of their basic salary towards HRA, which will significantly reduce their taxable income.
Previously, while five of the eight cities offered 50%, only four offered a lower exemption limit at 40%. Now, this exemption has been broadened to accommodate the rising costs of living in urban areas. The move is seen as essential to address the gap between rental prices and actual incomes.
Experts note that this change will not just benefit salaried individuals but also create a positive ripple effect through increased disposable income, potentially boosting demand for rental housing in these cities.
In addition to HRA exemptions, the government has also raised the limits for several other deductions for those under the old tax regime. These include increases in the expenditure related to children's education and hostels, free meals provided by employers, as well as a reduction in taxes on expenses related to foreign studies or travel.Aware of the potential compliance challenges that may arise with such changes, the government has also tightened regulations through technology-based measures. This ensures comprehensive scrutiny while safeguarding against speculations and misuse.
