The HRA Rule That Has Not Changed Since 1961 Just Changed
House Rent Allowance exemption has been governed by Section 10(13A) of the Income Tax Act since 1961. The rule divides India into two categories for HRA purposes: metro cities, which get a 50% of salary exemption ceiling, and non-metro cities, which get 40%. For 60 years, only four cities qualified as metro: Delhi, Mumbai, Kolkata and Chennai.
This changed on April 1, 2026. Rule 279 of the Income Tax Rules 2026, notified under the new Income Tax Act 2025, expanded the metro city list to eight. Bengaluru, Hyderabad, Pune and Ahmedabad are now classified as metro cities for HRA purposes. Employees in these cities who pay rent can now claim HRA exemption up to 50% of their basic salary, instead of the 40% that applied until March 31, 2026.
The change is long overdue. Average rents in Bengaluru and Hyderabad have been higher than in Chennai and Kolkata for over a decade, driven by the concentration of IT and services employers. Salaried professionals in these cities were effectively penalised under the old classification. That anomaly is now corrected.
Jump directly to: HRA formula explained with the three-number calculation. Kavya's example shows old vs new exemption for a Bengaluru employee in rupee terms. City-wise exemption table confirms which cities are now at 50% and which remain at 40%. Old vs new regime decision tells you when HRA makes the old regime worth choosing.
What Exactly Changed from April 1, 2026
The change is specific and surgical. Nothing in the HRA formula has changed. The three-way minimum calculation remains exactly the same. What changed is the percentage used in one of the three components for residents of the four newly elevated cities.
Under the old rules (until March 31, 2026), an employee in Bengaluru with a basic salary of Rs 80,000 per month could claim HRA exemption up to 40% of basic, which is Rs 32,000 per month, as the ceiling from the second component. Under the new rules from April 1, 2026, the ceiling for the same employee is 50% of basic, which is Rs 40,000 per month. That is Rs 8,000 more per month, or Rs 96,000 more per year, available as additional HRA exemption.
In the 30% tax bracket, Rs 96,000 of additional exemption saves Rs 29,952 per year in income tax. For a 20% bracket taxpayer, the saving is Rs 19,968 per year. This is tax saving with zero additional investment required — simply from a reclassification that reflects the economic reality of these cities.
The HRA Exemption Formula: The Least of Three
The HRA exemption calculation has always been the minimum of three amounts. This rule is unchanged in 2026. What you can claim as tax-exempt is the lowest of:
- Amount 1: Actual HRA received from your employer during the year
- Amount 2: 50% of (Basic Salary + DA) if you live in a metro city OR 40% of (Basic Salary + DA) if you live in a non-metro city
- Amount 3: Actual rent paid during the year minus 10% of (Basic Salary + DA)
The lowest of these three figures is your tax-exempt HRA. The rest, if any, is taxable. This calculation must be done annually, not monthly, to get the correct number. If your salary, rent, or HRA component changed during the year, you need to calculate it separately for each period and then add up the annual exemption.
Use Yieldora's HRA Calculator to enter your basic salary, HRA received, rent paid, and city type — and get your exact exempt and taxable HRA amounts instantly without manual calculation.
Metro vs Non-Metro: Complete City List for HRA 2026
The distinction between metro and non-metro is the only input in the HRA formula that changed. Here is the complete current classification:
| City | HRA Status from Apr 2026 | Exemption Ceiling | Changed? |
|---|---|---|---|
| Delhi (NCR) | Metro | 50% of Basic + DA | No change |
| Mumbai | Metro | 50% of Basic + DA | No change |
| Kolkata | Metro | 50% of Basic + DA | No change |
| Chennai | Metro | 50% of Basic + DA | No change |
| Bengaluru | Metro (new) | 50% of Basic + DA | Up from 40% |
| Hyderabad | Metro (new) | 50% of Basic + DA | Up from 40% |
| Pune | Metro (new) | 50% of Basic + DA | Up from 40% |
| Ahmedabad | Metro (new) | 50% of Basic + DA | Up from 40% |
| All other cities | Non-Metro | 40% of Basic + DA | No change |
All remaining cities in India, including Surat, Jaipur, Lucknow, Chandigarh, Kochi, Coimbatore, Indore and Bhopal, remain classified as non-metro with a 40% ceiling. If you live in any city not in the above list of eight, your HRA calculation uses the 40% figure in Amount 2.
Real Example: Kavya, Software Engineer in Bengaluru
Kavya is a 29-year-old software engineer at a tech company in Bengaluru. She earns a basic salary of Rs 80,000 per month. Her employer gives her HRA of Rs 40,000 per month. She pays Rs 30,000 per month in rent for a 2BHK in Whitefield. She is on the old tax regime. Here is how her HRA exemption changes from FY2025-26 to FY2026-27:
In Kavya's case, Amount 3 (rent minus 10% of basic = Rs 30,000 minus Rs 8,000 = Rs 22,000) is the binding constraint — it is lower than both Amount 1 (Rs 40,000 HRA received) and both the old Amount 2 (Rs 32,000) and new Amount 2 (Rs 40,000). The 50% rule change does not help her because Amount 3 is already the lowest. Her exemption remains Rs 22,000 per month.
This is the key insight most articles miss: The new 50% metro rule only benefits you when Amount 2 (the percentage of basic salary) is the binding constraint in the three-way comparison. If your rent is low relative to your salary — specifically if rent minus 10% of basic is lower than 50% of basic — the metro upgrade makes no difference. The rule change helps employees who pay high rent relative to their basic salary. For Kavya to benefit, she would need to either pay higher rent or have a lower basic salary. Use the HRA Calculator to instantly see which of the three amounts is your binding constraint.
When the New 50% Rule Does Make a Real Difference
Consider Kavya's colleague Ravi, who earns the same Rs 80,000 basic but pays Rs 45,000 per month in rent for a 3BHK near his office:
- Amount 1: Rs 40,000 (HRA received)
- Amount 2 (old 40%): Rs 32,000
- Amount 2 (new 50%): Rs 40,000
- Amount 3: Rs 45,000 minus Rs 8,000 = Rs 37,000
Old exemption: lowest of Rs 40,000, Rs 32,000, Rs 37,000 = Rs 32,000 per month.
New exemption: lowest of Rs 40,000, Rs 40,000, Rs 37,000 = Rs 37,000 per month.
Ravi's monthly exemption increases by Rs 5,000. Annual increase: Rs 60,000. Additional tax saved in the 30% bracket: Rs 18,720 per year. For him, the new metro classification makes a meaningful and immediate difference to his tax liability.
Does the New HRA Rule Make the Old Tax Regime Worth Choosing?
HRA exemption is available only under the old tax regime. Under the new regime, your entire HRA is taxable. So this change only benefits employees who are on, or considering switching to, the old regime. The question is whether HRA alone tips the balance.
For a Bengaluru employee in the 30% bracket paying Rs 40,000 per month in rent with a basic of Rs 80,000, the total annual deductions under the old regime could look like this: HRA exemption Rs 4.44 lakh, Section 80C Rs 1.5 lakh, NPS 80CCD(1B) Rs 50,000, standard deduction Rs 50,000, total Rs 6.94 lakh. On Rs 18 lakh income, the old regime saves approximately Rs 1.2 lakh more in tax than the new regime. The upgraded HRA alone contributes Rs 30,000 to Rs 60,000 of that saving.
The decision remains individual. Use Yieldora's Income Tax Calculator to compare both regimes at your exact income, HRA, and deduction profile. The right answer changes based on your rent, loan, and investment situation — and it should be recalculated every April when the financial year begins.
Frequently Asked Questions
Which cities are now metro for HRA exemption from April 2026?
From April 1, 2026, eight cities are classified as metro for HRA exemption purposes under Rule 279 of the Income Tax Rules 2026. The original four — Delhi, Mumbai, Kolkata and Chennai — retain their metro status. Four new cities have been added: Bengaluru, Hyderabad, Pune and Ahmedabad. Employees residing and working in any of these eight cities can now claim HRA exemption up to 50% of their basic salary plus DA, instead of the earlier 40% limit that applied to the four new additions.
How is HRA exemption calculated in 2026?
HRA exemption is the lowest of three amounts: (1) actual HRA received from employer, (2) 50% of basic salary plus DA for metro city residents or 40% for non-metro residents, and (3) actual rent paid minus 10% of basic salary plus DA. The lowest of these three figures is the tax-exempt portion of your HRA. The remaining HRA, if any, is added to your taxable income and taxed at your applicable slab rate.
How much extra tax will I save in Bengaluru under the new 50% HRA rule?
It depends on your basic salary and rent. For a Bengaluru employee with Rs 80,000 basic salary paying Rs 35,000 monthly rent, the HRA exemption ceiling rises from Rs 32,000 per month (40%) to Rs 40,000 per month (50%). If actual rent minus 10% of basic is the binding constraint, the increase in annual exemption is Rs 96,000. In the 30% tax bracket, that saves approximately Rs 29,952 per year in additional tax. Use Yieldora's HRA Calculator for your exact numbers.
Is HRA exemption available under the new tax regime in 2026?
No. HRA exemption under Section 10(13A) is available exclusively under the old tax regime. Under the new tax regime, the entire HRA received from your employer is fully taxable regardless of your city, rent paid, or any other factor. If you are paying significant rent in a high-rent city and receive a substantial HRA component, this benefit alone is a strong reason to evaluate whether the old regime saves you more tax overall.
Can I claim HRA if I pay rent to my parents?
Yes. You can claim HRA by paying rent to your parents, provided the arrangement is genuine. You must have a valid rent agreement with your parents, pay rent through bank transfer (not cash), and your parents must declare the rental income in their own income tax return. The HRA exemption calculation is the same as for any other rental. If annual rent exceeds Rs 1 lakh, your parents' PAN is mandatory.
Can I claim both HRA exemption and home loan deduction in 2026?
Yes, both can be claimed simultaneously under the old tax regime in specific situations. If you own a house in one city but pay rent in another city for work, you can claim HRA exemption on the rent paid and Section 24(b) deduction on home loan interest on the property in the other city. Both cannot be claimed for the same property in the same city. Proper documentation — rent receipts, loan certificate, and address proof — is required to support both claims.
What documents are needed to claim HRA exemption in 2026?
You need rent receipts for each month of rent paid, a rent agreement or lease deed, and your landlord's PAN card if annual rent exceeds Rs 1 lakh. The 2026 rules also require disclosure of the relationship between landlord and tenant. If paying to parents, you need a signed rent agreement and proof of bank transfer. Submit these to your employer's HR department before the year-end TDS computation deadline, typically February or March.
What if my employer has not updated my HRA exemption to the new 50% metro rule?
If your employer processed your TDS at the old 40% rate for the Bengaluru, Hyderabad, Pune or Ahmedabad HRA limit, you can claim the correct higher exemption when filing your income tax return. The ITR allows you to independently claim the full HRA exemption you are entitled to, regardless of what your employer deducted. Any excess TDS will reflect as a refund after assessment. Keep all rent receipts and your rent agreement as documentation.