HRA Exemption 2026: Bengaluru, Hyderabad, Pune Now Get 50% — But Not in Your July ITR
Your city just qualified for the 50% (metro) HRA exemption rate. Four cities — Bengaluru, Hyderabad, Pune, and Ahmedabad — joined Delhi, Mumbai, Kolkata, and Chennai under the Income Tax Act 2025, effective April 1, 2026. But the ITR you are filing this July covers income from FY 2025-26 — that is the old Act, and you still get 40%. Here is the math that matters now, what documentation changed, and when the higher rate actually hits your tax bill.
Summary
| FY 2025-26 (AY 2026-27) — File by July 31 | FY 2026-27 (AY 2027-28) — File July 2027 | |
|---|---|---|
| Delhi, Mumbai, Kolkata, Chennai | 50% of basic | 50% of basic |
| Bengaluru, Hyderabad, Pune, Ahmedabad | 40% of basic ← you are here | 50% of basic |
| All other cities | 40% of basic | 40% of basic |
| Declaration form | Form 12BB (current) | Form 124 (if notified) |
| Landlord PAN required | Annual rent > ₹1 lakh | Annual rent > ₹1 lakh |
Why Four New Cities Now Qualify
Section 10(13A) of the old Income Tax Act capped the 50% (metro) rate at four cities: Delhi, Mumbai, Kolkata, Chennai. Bengaluru, Hyderabad, Pune, and Ahmedabad — where mid-senior tech employees routinely pay ₹40,000–₹80,000 per month in rent — were treated the same as Jaipur or Lucknow.
The Income Tax Act 2025 corrects this by reclassifying all eight cities as "specified urban agglomerations." Effective date: April 1, 2026, meaning income earned from FY 2026-27 onwards gets the 50% rate. The return due July 31, 2026 covers FY 2025-26 — still the old Act. That filing gets 40%.
The Transition-Year Trap: Which ITR Gets 50% First?
This is the part every news article buries. The new 8-city rule applies to income earned from April 1, 2026 — FY 2026-27, assessed in AY 2027-28. The ITR due July 31, 2026 covers FY 2025-26, governed by the old rules.
For a Bengaluru-based employee at ₹22L CTC (₹14.4L basic, ₹7.2L HRA, paying ₹70,000 per month in rent):
| HRA Condition | AY 2026-27 — 40% | AY 2027-28 — 50% |
|---|---|---|
| Actual HRA received | ₹7,20,000 | ₹7,20,000 |
| Rent paid − 10% of basic (₹8.4L − ₹1.44L) | ₹6,96,000 | ₹6,96,000 |
| City rate × basic salary | ₹5,76,000 ← binding | ₹7,20,000 |
| HRA exempt | ₹5,76,000 | ₹6,96,000 |
| Extra exempt from rate upgrade | — | ₹1,20,000 |
| Tax saved at 30% slab + 4% cess | — | ₹37,440 per year |
The rate upgrade saves ₹37,440 per year for this employee — but only starting from the return filed in July 2027.
One critical caveat: if rent minus 10% of basic is already the binding condition (the more common case at moderate rent levels), the 40%→50% reclassification does not change your exemption at all. Know which condition limits you before assuming a windfall.
Calculating Your HRA Exemption: The 3-Condition Rule
Under Section 10(13A), HRA exempt = the lowest of:
- Actual HRA received from your employer
- Total rent paid in the year − 10% of your basic salary
- 40% of basic salary (50% if your city qualifies from the applicable assessment year)
"Basic salary" here means basic + dearness allowance — not CTC, not gross.
Quick check: ₹15L CTC (₹8L basic, ₹2.4L HRA, rent ₹25,000/month = ₹3L/year) in Bengaluru, AY 2026-27:
- Condition 1 — Actual HRA: ₹2,40,000
- Condition 2 — Rent − 10% basic: ₹3,00,000 − ₹80,000 = ₹2,20,000 ← binding
- Condition 3 — 40% of basic: ₹3,20,000
HRA exempt: ₹2,20,000. If you were in Delhi at the same rent, the result would be identical — 50% of ₹8L = ₹4L is still higher than Condition 2. At this rent level, the city classification makes no difference.
To benefit from the metro rate, your rent must be high enough that Condition 3 becomes the bottleneck. That typically happens when monthly rent exceeds 50% of your monthly basic.
New Documentation Requirements From April 2026
Form 124 Replacing Form 12BB
From April 1, 2026, HRA declarations are expected to shift to Form 124 under the Income Tax Act 2025. As of July 2026, Form 124 is pending gazette notification in some jurisdictions and your employer may still be using Form 12BB. Submit whichever form your HR system requests. If asked to re-declare, do so promptly — your TDS for the year depends on this submission.
Landlord PAN for Rent Exceeding ₹1 Lakh Per Year
If annual rent paid to a single landlord exceeds ₹1,00,000 (more than ₹8,333 per month), furnish the landlord's PAN to your employer. If the landlord does not have a PAN, obtain a signed Form 60 self-declaration. Missing PAN does not automatically disqualify the exemption, but it shifts scrutiny risk onto you and may prompt your employer to withhold TDS on the HRA component.
Rent Receipts and a Clean Payment Trail
Provide monthly receipts bearing the landlord's name, amount, property address, and signature. Pay via NEFT, IMPS, or UPI — cash payments leave no audit trail and are inadmissible in a dispute.
Rent to Parents: The Full Compliance Chain
Paying rent to a parent is legitimate under Indian tax law. It fails only when the paper trail breaks. Here is what an ITD officer checks at scrutiny:
- Rent agreement — registered or notarized, specifying the property, monthly rent, and tenure
- Bank transfer records — NEFT/IMPS/UPI from your account to the parent's; dates and amounts must match receipts exactly
- Monthly rent receipts — signed by the parent-landlord for each month
- Parent's ITR — rent income must appear under Income from House Property; if it is absent, the ITD can disallow your HRA claim and issue a notice to the parent for under-reporting
- Property ownership proof — the parent should own or have legal right to the property
The most common failure: the employee claims ₹3L rent paid to parents, but the parent files a low-income ITR without including rental receipts. File the parent's return first, verify the rental income entry, then file your own.
Old vs New Regime: HRA Only Helps You in the Old Regime
Under the new tax regime, HRA received from your employer is fully taxable — no Section 10(13A) exemption applies. For a Bengaluru tech professional paying ₹70,000 per month in rent, that is ₹5,76,000 of HRA exemption (AY 2026-27) worth ₹1,79,712 in annual tax savings that disappears entirely under the new regime.
If you have legitimate rent receipts, form 80C investments, and 80D health insurance premiums, the old regime almost always wins at ₹15L+. If you have none of those deductions, the new regime's lower slabs typically win. Run the break-even with your actual deduction stack before the July 31 deadline.
What to Do This Week
- Identify your binding condition: Compute all three HRA conditions for FY 2025-26. If Condition 2 is lower than 40% of basic, the city reclassification changes nothing — file at 40%.
- Submit landlord PAN: If annual rent exceeds ₹1 lakh, ensure your employer has the landlord's PAN or Form 60 before TDS is finalised.
- Sync parent's ITR first: If you pay rent to a parent, verify their AY 2026-27 return includes the rental income before you file your own.
- Alert payroll for next year: Inform your HR team that Bengaluru, Hyderabad, Pune, and Ahmedabad employees qualify for 50% from April 1, 2026 — so FY 2026-27 TDS reflects the higher exemption from month one.
File Right Now, Upgrade Next Year
The 8-city HRA expansion is real and overdue. It does not help your July 2026 return. For AY 2026-27, apply 40% if you are in Bengaluru, Hyderabad, Pune, or Ahmedabad. Build the documentation trail now so your AY 2027-28 return captures the full ₹37,440+ saving without friction.
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