HRA Jumps to 50% in Bengaluru, Pune, Hyderabad & Ahmedabad
If you rent in Bengaluru, Pune, Hyderabad or Ahmedabad, your House Rent Allowance exemption is about to get materially bigger — but not on the return you file this July. Under the Income Tax Rules 2026, these four cities move from the 40% HRA bracket to the 50% bracket from 1 April 2026 (FY 2026-27). For a ₹28L earner paying ₹75,000 rent, that is up to ₹1.4 lakh more tax-free income — roughly ₹43,700 saved a year. Here is the catch, the math, and the one decision that determines whether you see a rupee of it.
Summary
| City | HRA cap till 31 Mar 2026 | HRA cap FY 2026-27 onwards |
|---|---|---|
| Mumbai, Delhi, Kolkata, Chennai | 50% of basic | 50% (unchanged) |
| Bengaluru | 40% of basic | 50% of basic |
| Hyderabad | 40% of basic | 50% of basic |
| Pune | 40% of basic | 50% of basic |
| Ahmedabad | 40% of basic | 50% of basic |
| Every other city | 40% of basic | 40% (unchanged) |
The 50% "metro" club goes from 4 cities to 8. The exemption still runs through Section 10(13A) and the same three-way formula — only the percentage cap for these four cities changes.
What actually changed — and what didn't
The 8-city list
Until now, only Mumbai, Delhi, Kolkata and Chennai let you cap HRA at 50% of basic salary; everyone else — including India's biggest tech hubs — was stuck at 40%. From FY 2026-27, Bengaluru, Pune, Hyderabad and Ahmedabad join the 50% list. That is a 25% wider ceiling in exactly the cities where rents bite hardest.
The timing trap — this does NOT help your July 2026 ITR
This is where most coverage gets it wrong. The new 8-city rule is effective 1 April 2026 — FY 2026-27 (AY 2027-28). The return you file by 31 July 2026 is for FY 2025-26, and for that year Bengaluru, Pune, Hyderabad and Ahmedabad are still 40% cities. Claim 50% on this year's ITR and you are inviting a notice. Treat 50% as a planning number for the year that began this April, not a filing number for last year.
HRA is an old-regime-only benefit
HRA exemption exists only under the old tax regime. If you are on the new regime — the default under Section 115BAC — your HRA is fully taxable, city upgrade or not. So the 50% bump is worth nothing until you answer the prior question: should you be in the old regime at all? For a renter with a large HRA, the answer often flips to yes — see below.
The formula still caps you
Your exempt HRA is the least of these three (Section 10(13A), Rule 2A):
- Actual HRA received
- 50% of basic salary (your city now) — was 40%
- Rent paid minus 10% of basic salary
The city change lifts only lever #2. If your rent is modest, lever #3 still binds and you will not capture the full jump. The benefit is largest when your rent comfortably exceeds 50% of your basic.
Real example: Salaried, ₹28L CTC, Bengaluru, ₹75,000 rent
Same person, same salary, same flat — only the financial year changes.
| Item | FY 2025-26 (40% rule) | FY 2026-27 (50% rule) |
|---|---|---|
| Basic salary | ₹14,00,000 | ₹14,00,000 |
| HRA received | ₹7,00,000 | ₹7,00,000 |
| Rent paid (₹75,000/mo) | ₹9,00,000 | ₹9,00,000 |
| City cap (lever #2) | 40% = ₹5,60,000 | 50% = ₹7,00,000 |
| Rent − 10% of basic (lever #3) | ₹7,60,000 | ₹7,60,000 |
| HRA exempt (least of 3) | ₹5,60,000 | ₹7,00,000 |
| Extra tax-free income | — | ₹1,40,000 |
| Tax saved @ 31.2% | — | ≈ ₹43,700 |
In FY 2025-26 the 40% cap binds at ₹5.6L. In FY 2026-27 the cap rises to ₹7L, where your actual HRA becomes the limit — handing you ₹1.4 lakh of extra exempt income and roughly ₹43,700 in tax at the 30% slab plus 4% cess. If your rent were under about ₹58,000/month, lever #3 would bind first and you would capture less — run your own numbers.
Does the 50% bump flip your tax regime?
Here is the part nobody runs: the extra HRA can change which regime wins. Take the same Bengaluru renter — ₹28L salary, ₹7L HRA, ₹1.5L under Section 80C, ₹25,000 health cover under Section 80D:
| Regime (FY 2026-27) | HRA exempt | Approx. annual tax |
|---|---|---|
| New regime | ₹0 (not allowed) | ≈ ₹4,13,000 |
| Old regime @ 40% HRA | ₹5,60,000 | ≈ ₹4,34,000 |
| Old regime @ 50% HRA | ₹7,00,000 | ≈ ₹3,90,000 |
At 40%, the old regime was the worse choice for this person — the new regime won. The jump to 50% adds ₹1.4 lakh of exemption, drops old-regime tax below the new regime, and flips the decision: the old regime now wins by roughly ₹23,000 a year. If you are a high-HRA renter in one of the four upgraded cities, redo this comparison before your April salary declaration — the regime you picked last year may no longer be optimal. (Assumes standard deduction, ₹1.5L 80C, ₹25,000 80D; your figures will differ — model both.)
What to do this week
- Check your city and your basic. Pull your latest payslip and confirm your basic salary and monthly HRA. Your exemption scales off basic, not CTC.
- Rerun the regime decision for FY 2026-27. A ₹5L+ HRA exemption almost always tips a renter toward the old regime. If you moved to the new regime last year for simplicity, that call may now cost you.
- Fix your rent paper trail. Rent agreement, monthly bank transfers (never cash), and your landlord's PAN once annual rent crosses ₹1,00,000. The bigger the claim, the more the documentation matters.
- Do not backdate it. File this July's ITR (FY 2025-26) on the 40% rule. Apply 50% only from your FY 2026-27 planning and salary declarations.
The bottom line
The HRA upgrade is real money — up to ₹1.4 lakh of extra tax-free income for a Bengaluru renter — but it is gated behind two decisions most people get wrong: it starts FY 2026-27 (not your July return), and it is worth nothing unless you are in the old regime. Get both right and a tech-hub renter pockets ₹40,000+ a year; get them wrong and you either leave it on the table or invite a notice.
Ready for a personalised plan? Start your free diagnosis — 6 questions, 5 minutes.
